This Thursday morning, ahead of the opening bell, we see new economic data releases to be tracked by investors and economists of all stripes. Both reports will also inform members of the Federal Open Market Committee (FOMC), which decides interest rate policy — and is a virtual lock to raise rates another quarter-percent when the FOMC reconvenes next month.
Initial Jobless Claims rose last week, but only from a downwardly revised 210K up to 213K — still within the historically low 200-225K range that had been a mere pipe dream for economists just a year or two ago. This remains consistent with a robust U.S. labor market, and we will see this broader narrative when new ADP (ADP - Free Report) private-sector and BLS non-farm payroll results are released next week.
Continuing Claims fell notably again, from an already very low 1.728 million to 1.708 million. Considering the sheer size of the U.S. labor force, having this few citizens seeking unemployment past the initial claims stage is truly impressive. Of course, the type of employment people are able to obtain — and in which parts of the country — is also extremely important, and again we’ll get a more detailed look when next week’s jobs reports come out.
Part of the employment quality question can be determined by wage growth, and this shows up partly in the new July Personal Income report, also released before regular trading opens today. Income rose 0.3% month over month, from 0.4% in June and as analysts had been expecting. Spending also came in as estimates had indicated at +0.4%. “Real” spending — adjusted for inflation — came in-line with estimates as well, at +0.2%.
The Personal Consumption Expenditure (PCE) “deflator” — the Fed’s preferred gauge of economic growth — reached +0.1% from June to July, and +2.3% year over year. “Core” was +0.2% month over month, +2.0% year over year. Thus, when we strip away volatile aspects of economic growth — commodity prices, etc. — we see a modest but steady gain in inflation over time. This means goods and services are indeed costing more than they were previously, and will continue to move this direction as the FOMC takes action ratcheting up interest rates another quarter point.
But wages and salaries, also up 0.4% in this latest report, are helping consumers keep up with rising prices. Although in other parts of the world, including emerging markets, we currently have begun to embark on a new decoupling between the U.S. economy and elsewhere. This may create a headwind for our domestic economy, if our allies and others — not to mention trade tariff realities which may aggravate these measures — do not follow suit. Then again, it’s better to be where we are than where anyone else is.