The September Consumer Price Index (CPI) continued to decline, further evidence that the inflation battle has been won. All eyes are now on whether strong economic growth can continue with the labor market beginning to falter, which the Fed has said is a primary concern.
An early sign of labor weakness is that the weekly initial claims for unemployment has risen. The number of Americans who applied for unemployment benefits surged by 33,000 to 258,000 in the week that ended Oct. 5, the Labor Department said on Thursday. This is the highest level of initial claims since early August 2023.
Some of the increase may be due to one-off events like the Boeing strike and hurricanes ravaging the east coast. But that’s another reason the Fed should continue to cut interest rates for consumers that are facing uncertain futures, whether it’s more frequent natural disasters as our planet continues to warm, or future labor unrest.
“In September, the Consumer Price Index for All Urban Consumers rose 0.2 percent, seasonally adjusted, and rose 2.4 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.3 percent in September (SA); up 3.3 percent over the year (NSA),” said the Bureau of Labor Statistics.
Up just 2.4 percent in a year, retail inflation has reached the Fed’s target rate, for all intents and purposes. Continuing to hold interest rates too high for too long could precipitate more job losses.
NY Fed President John Williams said recently that it was now time to help the labor market.
“The FOMC “instituted and maintained a very restrictive monetary policy stance until the data gave us confidence that inflation is sustainably on course to 2 percent,” President Williams said. “With this progress toward achieving price stability, moving toward a more neutral monetary policy stance will help maintain the strength of the economy and labor market.”
Williams predicted what more balanced growth would look like:
· Real GDP to grow between 2-1/4 and 2-1/2 percent this year and to average about 2-1/4 percent over the next two years.
· The unemployment rate to edge up from its current level of about 4 percent to around 4-1/4 percent at the end of this year and stay around that level next year.
I reported another important fact last week. The BEAsaid that profits from current production (corporate profits with inventory valuation and capital consumption adjustments) almost doubled in the final revision. So strong economic growth continues as inflation is declining.
Even more optimistic growth predictions for third quarter growth come from the Atlanta Federal Reserve GDPNow estimate.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 is 3.2 percent on October 9, unchanged from October 8 after rounding. After this morning's wholesale trade release from the US Census Bureau, the nowcast of third-quarter real gross private domestic investment growth decreased from 3.4 percent to 3.3 percent.
So why has job growth been so high, even with the Fed’s restrictive credit policies for the past two years? A grand total of 256,000 jobs were added to nonfarm payrolls in September.
September’s unemployment report showed governments, and the construction industry created 56,000 new jobs. These are largely jobs in rebuilding our infrastructure, a product of Bidenomics. Another 156,000 jobs were added in Leisure/Hospitality, Education and Healthcare.
The Infrastructure Investment and Jobs Act (IIJA), aka Bipartisan Infrastructure Law (BIL), was signed into law by President Biden on November 15, 2021. The law authorizes $1.2 trillion for transportation and infrastructure spending with $550 billion of that figure going toward "new" investments and programs.
Need we say more on what is continuing to power economic growth?
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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