Economy DA Updates - Michigan 2024 HHIRS

Recession now
Recession coming now—Sahm rule proves
Dudley 7/24 Bill Dudley, a Bloomberg Opinion columnist, served as president of the Federal Reserve Bank of New York from 2009 to 2018. “I Changed My Mind. The Fed Needs To Cut Rates Now.” Bloomberg https://www.bloomberg.com/opinion/articles/2024-07-24/the-fed-needs-to-cut-interest-rates-now?srnd=undefined Published July 24th, 2024, Accessed July 25th, 2024 by NT-BH
I’ve long been in the “higher for longer” camp, insisting that the US Federal Reserve must hold short-term interest rates at the current level or higher to get inflation under control.
The facts have changed, so I’ve changed my mind. The Fed should cut, preferably at next week’s policy-making meeting.
For years, the persistent strength of the US economy suggested that the Fed wasn’t doing enough to slow things down. The government’s pandemic-era largesse left people and businesses with plenty of cash to spend. The Biden administration’s vast investments in infrastructure, semiconductors and the green transition boosted demand. Easing financial conditions — particularly a surging stock market — increased wealthier households’ propensity to consume. Containing the resulting inflation, it seemed, would require sustained monetary tightening from the Fed.
Now, the Fed’s efforts to cool the economy are having a visible effect. Granted, wealthy households are still consuming, thanks to buoyant asset prices and mortgages refinanced at historically low long-term rates. But the rest have generally depleted what they managed to save from the government’s huge fiscal transfers, and they’re feeling the impact of higher rates on their credit cards and auto loans. Housing construction has faltered, as elevated borrowing costs undermine the economics of building new apartment complexes. The momentum generated by Biden’s investment initiatives appears to be fading.
Slower growth, in turn, means fewer jobs. The household employment survey shows just 195,000 added over the past 12 months. The ratio of unfilled jobs to unemployed workers, at 1.2, is back where it was before the pandemic.
Most troubling, the three-month average unemployment rate is up 0.43 percentage point from its low point in the prior 12 months — very close to the 0.5 threshold that, as identified by the Sahm Rule, has invariably signaled a US recession.
Meanwhile, inflation pressures have abated significantly after a series of upside surprises earlier this year. The Fed’s favorite consumer-price indicator — the core deflator for personal consumption expenditures — was up 2.6% in May from a year earlier, not far above the central bank’s 2% objective. The June reading, coming next week, is likely to reinforce this trend, judging from already reported data that feed into the core PCE calculation. On the wage front, average hourly earnings were up 3.9% in June from a year earlier, compared with a peak of nearly 6% in March 2022.
Why, then, are Fed officials strongly hinting that there will be no rate cut at next week’s meeting?
I see three reasons. First, the Fed doesn’t want to be fooled again. Late last year, a moderation in inflation turned out to be temporary. This time around, further progress in reducing year-over-year inflation will be difficult, due to low readings in the second half of last year. So officials might be hesitant to declare victory.
Second, Chair Jerome Powell might be waiting in order to build the broadest possible consensus. With markets already fully expecting a cut in September, he can argue to doves that delay will have little consequence, while building more support among hawks for the September move.
Third, Fed officials don’t seem particularly troubled by the risk that the unemployment rate could soon breach the Sahm Rule threshold. The logic is that rapid labor force growth, rather than a rise in layoffs, is driving the increase in the unemployment rate. This isn’t compelling: The Sahm Rule accurately predicted recessions in the 1970s, when the labor force was also growing rapidly.
Creator of the Sahm curve agrees
Sor 5/25 Jennifer Sor is reporter for Markets Insider. “The US job market is close to the 'danger zone,' famed economist Claudia Sahm says.” Business Insider. https://www.businessinsider.com/recession-outlook-job-market-layoffs-unemployment-rate-hiring-economy-2024-7 Published July 25th, 2024, accessed July 25th, 2024 by NT-BH
The job market is in the "yellow" zone as unemployment ticks higher, economist Claudia Sahm said.
Sahm is the creator of a highly accurate recession indicator that's close to being triggered.
The jobless rate rose to 4.1% in June, the highest level recorded since 2021.
The job market is edging closes to conditions typically associated with a downturn, according to the creator of a well-known recession indicator.
Claudia Sahm, a former Fed economist, voiced concerns about the state of the job market in an interview with Fox Business Network on Wednesday.
She's the creator of the Sahm Rule — the indicator that says a recession has started when the three-month moving average unemployment rate rises by half a percentage point over the three-month average in the prior 12-month period.
The indicator clocked in at 0.43% last month, meaning the unemployment rate is seven basis points away from triggering Sahm's historically accurate recession rule.
To be clear, the economy isn't on the cusp of a recession, Sahm said. Hiring remains strong overall, with the US adding a more-than-expected 206,000 jobs in June, according to the Bureau of Labor Statistics.
But hiring conditions are the yellow "yellow" zone, she said, as a big uptick in unemployment could easily push the US into recession territory.
"Things have cooled off. We should be concerned," Sahm said, later noting that increased immigration and slower-than-expected hiring in the state and the local sector could be contributing to higher unemployment.
"These things can all be part of good news — we're getting everything back in order and in balance and we can move forward — but…if we have further weakening in demand for workers, we start to see layoff rates move up, we're close enough to the danger zone you're moving into a recession," she added.
The jobless rate remains near historic-lows, but has inched steadily higher over the past year. Unemployment rose to 4.1% last month, the highest level recorded since 2021, according to Fed data.
Some forecasters have predicted job losses could rise in the coming months. Companies could continue to struggle financially amid high interest rates, which could push the unemployment rate to 5% by the end of the year, top economist David Rosenberg has predicted.
The outlook on recession though still remains mixed. According to New York Fed economists, the economy has a 56% chance of tipping into a downturn by June of next year.
Soft landing now
Soft landing now
Casselman 7/25 Ben Casselman writes about economics with a particular focus on stories involving data. He has covered the economy for nearly 20 years, and his recent work has focused on how trends in labor, politics, technology and demographics have shaped the way we live and work. “U.S. Economic Growth Accelerates, Outpacing Forecasts” New York Times, https://www.nytimes.com/2024/07/25/business/economy/us-gdp-economy-inflation.html, Published July 25th, 2024, Accessed July 25th, 2024 by NT-BH
Economic growth picked up more than expected in the spring, as cooling inflation and a strong labor market allowed consumers to keep spending even as high interest rates weighed on their finances.
Gross domestic product, adjusted for inflation, increased at a 2.8 percent annual rate in the second quarter, the Commerce Department said on Thursday. That was faster than the 1.4 percent rate recorded in the first quarter, but shy of the unexpectedly strong growth in the second half of last year.
Consumer spending, the backbone of the U.S. economy, rose at a 2.3 percent annual rate in the second quarter — a solid pace, albeit much slower than in 2021, when businesses were reopening after pandemic-induced closings. Business investment in equipment rose at its fastest pace in more than two years. Inflation, which picked up unexpectedly at the start of the year, eased in the quarter.
The data is preliminary and will be revised at least twice.
Taken together, the findings suggest that the economy remains on track for a rare “soft landing,” in which inflation eases without triggering a recession. That is something few forecasters considered likely when the Federal Reserve began raising interest rates two years ago to combat inflation.
“It’s the perfect landing,” said Sam Coffin, an economist at Morgan Stanley.
Recession fears re-emerged in recent months, first when inflation briefly surged and then when the previously rock-solid job market showed signs of cracking in the spring. But recent data, including the surprisingly strong second-quarter growth figures, indicate that the expansion is on firm footing.
“The economy is in a transition, but it’s in a good place,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The economy is slowing from very strong growth in the second half of last year. We’re just settling down into something that’s a little more sustainable.”
Ordinarily, the encouraging data would be good news for President Biden and his preferred successor, Vice President Kamala Harris. But polls show that voters are skeptical of the rosy economic narrative, in part because prices are substantially higher than before the pandemic even though inflation has cooled. And despite the strong growth in the second quarter, the economy has gradually lost momentum, and most forecasters expect growth to slow further in the second half of the year.
The next president could face an easier path, with less inflation, lower interest rates and the delayed impact of the big investments in infrastructure and green energy that Congress approved under Mr. Biden.
The second-quarter growth figures were lifted by businesses’ rebuilding inventories, a volatile component that often swings wildly from one quarter to the next. But measures of underlying demand in the economy were also strong. Businesses invested more in equipment and software, and consumers spent more on goods and services alike. Exports and imports both rose.
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Inflation, meanwhile, continued to cool. Consumer prices rose at a 2.6 percent rate, down from 3.4 percent in the first quarter and only modestly above the Fed’s long-run target of 2 percent per year.
Fed officials will meet next week to weigh when to begin lowering interest rates, which they have held at their current level, the highest in decades, for the past year. Hardly anyone expects policymakers to cut rates next week, but they could signal that such a move could come as soon as September if inflation continues to cool.
The economy as a whole has proved surprisingly resilient in the face of high interest rates. But the Fed’s policies have taken a clear toll in some areas. The housing market, in particular, has struggled as high borrowing costs have made it more expensive both to buy existing homes and to build new ones. Residential investment — a category that includes home construction and renovations — fell in the second quarter after rebounding last year.
And while overall consumer spending has remained strong, there are signs that some families — especially those with low or moderate incomes — are struggling. More borrowers are falling behind on car loans and credit card payments, and major retailers have reported that consumers have become more cautious.
“Right now it’s a double or triple whammy,” said Dana Peterson, chief economist for the Conference Board, a business group. “Prices are high, insurance costs are high and if I want to finance anything, it’s going to be really expensive.”
Consumers have been able to keep spending because unemployment has stayed low and wages have risen faster than prices; after-tax income, adjusted for inflation, rose at a 1 percent annual rate in the second quarter. But the unemployment rate has edged up in recent months, and some economists are concerned that more businesses could begin laying off workers. That could cause ripple effects in the entire economy.
“For the consumer, it boils down to the job market,” Mr. Sweet said. “That’s why it’s critical that the job market hangs in there.”
Economy strong now
Mutikani 7/25 Lucia Mutikani is a journalist at Reuters who frequently writes about the economy and fiscal policy. “US economy regains speed in second quarter; price pressures easing.” Reuters, https://www.reuters.com/markets/us/us-economic-growth-regains-steam-second-quarter-inflation-slows-2024-07-25/ Published July 25th, 2024, accessed July 27th, 2024 by NT-BH
The U.S. economy grew faster than expected in the second quarter amid solid gains in consumer spending and business investment, but inflation pressures subsided, leaving intact expectations of a September interest rate cut from the Federal Reserve.
Growth last quarter also received a boost from inventory building as well as increased government spending, the Commerce Department's advance report on second-quarter gross domestic product on Thursday showed. The housing market recovery, however, regressed and was a small drag on the economy. The trade deficit widened further, subtracting from GDP growth.
The report dispelled concerns that the economic expansion was in danger of an abrupt end, which had been stoked by a lackluster performance in the first quarter and in April.
The economy continues to outperform its global peers, despite hefty rate hikes from the U.S. central bank in 2022 and 2023, thanks to a resilient labor market.
"Economic growth is solid, not too hot and not too cold," said Christopher Rupkey, chief economist at FWDBONDS. "Inflation looks to be going the Fed's way and an easing of monetary restraint with an interest rate cut is likely in September."
Gross domestic product increased at a 2.8% annualized rate last quarter, the Commerce Department's Bureau of Economic Analysis said in its advance estimate of second-quarter GDP. That was double the 1.4% growth pace in the first quarter.
Economists polled by Reuters had forecast GDP rising at a 2.0% rate. Estimates ranged from a 1.1% rate to a 3.4% pace.
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Consumer spending, which accounts for more than two-thirds of the economy, increased at around a 2.3% rate after slowing to a 1.5% pace in the January-March quarter. Spending was driven by increased outlays on services like healthcare, housing and utilities as well as club memberships, visits to sports centers, parks, theaters and museums, and gambling.
Consumers also boosted outlays on goods, including new light trucks, recreational goods and vehicles, furnishings and durable household equipment as well as energy products.
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Spending was in part supported by wage gains. A separate report from the Labor Department on Thursday showed the labor market steadily easing, with initial claims for state unemployment benefits dropping 10,000 to a seasonally adjusted 235,000 for the week ended July 20.
Business investment picked up as spending on equipment, mostly aircraft, surged at an 11.6% rate after rising at only a 1.6% pace in the first quarter. Spending on intellectual property products continued to rise, though the pace slowed from the brisk rate in the January-March quarter.
Businesses also accumulated more inventory, which increased at a $71.3 billion rate after rising at a $28.6 billion pace in the prior quarter.
Inventories added 0.82 percentage point to GDP growth after being a drag for two straight quarters. That more than offset a 0.72 percentage point hit from a wider trade gap.
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STRONG DOMESTIC DEMAND
Even discounting inventories, trade and government spending, growth was solid last quarter, with domestic demand rising at a 2.6% pace. The increase in final sales to private domestic purchasers matched the gain in the January-March quarter.
"The U.S. economy is much stronger than people realize and to the extent that markets were worried about a growth slowdown, they should breathe a sigh of relief," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
Stocks on Wall Street were mixed. The dollar slipped against a basket of currencies. U.S. Treasury prices rose.
The rise in GDP growth bodes well for a pick-up in productivity, which would slow the pace of increase in labor costs and ultimately price pressures. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased at a 2.9% rate after surging at a 3.7% pace in the first quarter.
While the rise in the so-called core PCE price index was slightly above economists' expectations for a 2.7% rate of increase, the trend is slowing. Core inflation increased 2.7% from a year ago, welcome news for policymakers ahead of their two-day policy meeting next week.
The core PCE price index is one of the inflation measures tracked by the Fed for its 2% target.
"We think revisions to past [monthly] data may explain part of the miss," said Daniel Vernazza, chief international economist at UniCredit Bank.
The government's broadest gauge of prices in the economy, the gross domestic purchases price index, rose at a 2.3% pace after jumping at a 3.1% rate in the January-March quarter.
The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for the past year. It has hiked its policy rate by 525 basis points since 2022. Financial markets expect three rate cuts this year, starting in September.
Despite the solid economic growth pace, the outlook for the second half of the year is hazy. The labor market is slowing, which will impact wage gains.
Though wages rose, income at the disposal of households after adjusting for inflation and taxes increased more slowly last quarter, rising at a 1.0% rate after climbing at a 1.3% pace in the first quarter.
That meant consumers turned to savings and also saved less to fund their spending last quarter. The saving rate fell to 3.5% from 3.8% in the January-March period and is now well below its pre-pandemic average.
Economists also estimate that much of the Fed's rate hikes is still to be felt. State and local government revenues are also slowing, which could erode spending. There are also worries about new tariffs, which could see businesses front-loading imports if former President Donald Trump is returned to the White House in November's presidential election.
Nonetheless, a recession is not expected, with monetary policy easing anticipated this year.
"Economic activity is indeed about to downshift into a below potential path in the second half of the year," said Scott Anderson, chief U.S. economist at BMO Capital Markets.
Inflation cooling now
Inflation cooling now
Smialek 7/26 Jenna Smialek is a reporter covering the Federal Reserve and the U.S. economy for The New York Times. “Fed’s Preferred Inflation Measure Cooled Overall in June” New York Times. https://www.nytimes.com/2024/07/26/business/economy/federal-reserve-inflation-cooled.html, Published July 26th, 2024, accessed July 27th, 2024 by NT-BH
The Federal Reserve’s preferred inflation measure continued to gradually cool overall in June even as a “core” inflation measure held steady, likely enough evidence of progress to keep the central bank on track for a rate cut later this year but not enough to stoke speculation that it might reduce rates at its meeting next week.
The Personal Consumption Expenditures index was 2.5 percent higher in June than a year earlier, slower than May’s 2.6 percent and in line with economist expectations, fresh data released on Friday showed.
A “core” price measure that strips out food and fuel costs for a better sense of the underlying inflation trend proved slightly more stubborn. Yearly core inflati

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