The US economy hasn’t slowed. Fourth quarter Gross Domestic Product (GDP) growth was revised downward from 3.3 percent to 3.2 percent in the second estimate, and predictions for first quarter 2024 GDP growth are hovering between 2-3 percent.
The focus now shifts to Friday’s upcoming unemployment report. Today’s Job Openings and Labor Turnover Survey (JOLTS) will help to predict the jobs picture. The JOLTS report is holding at 8.9 million job openings, same as last month, so Friday’s unemployment rate should remain at a very low 3.7 percent.
Calculated Risk’s wonderful graph gives us the best visual portrayal of monthly changes in job creation. The black line portrays job openings, dark blue line portrays hires, and red bars show total separations. Net job formation has been in a downward trend since the Fed began to raise interest rates.
“The number of job openings changed little at 8.9 million on the last business day of January, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.”
The difference between hires and job separations is closer to the actual number of new jobs created in February—400,000 in this case. But after seasonal adjustments that attempt to ascertain the increase over last year at this time, new nonfarm payrolls jobs should be around 200,000 in Friday’s report, a very strong jobs report.
It shows us why there has been a record number of jobs created over the past two years.
Consumer spending is the main reason growth has been so strong. It was revised upward from 2.8 percent to 3 percent annually in last week’s Personal Consumption Expenditure’s report.
Inflation has been tamed as well. The personal consumption expenditures (PCE) price index increased just 1.8 percent, an upward revision of 0.1 percentage point. Excluding food and energy prices, the PCE price index increased 2.1 percent, an upward revision of 0.1 percentage point.
So why is the Fed waiting any longer to drop interest rates? They seem to be wanting consumers to spend less. Yet regional banks that specialize in commercial loans have been hurting since commercial office vacancy rates have soared. They need lower interest rates so they can refinance all those commercial loans about to come due.
Fed Chair Powell in his latest congressional testimony, said "What we want is just more evidence that will give us more confidence that inflation is on a path down to 2% sustainably."
But annual inflation is already below 2 percent with the PCE and wholesale Producer Price Indexes. What more evidence do they need?
The Fed is again playing its historical role of being the last to react to changing economic conditions—in this case the possibility of more bank failures if they don’t begin to lower short term interest rates soon.
Harlan Green © 2024
Harlan Green on Twitter: https://twitter.com/HarlanGreen
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