At TM3 Wealth, it is important that you are well-informed about what is happening in the markets. Here are a few of the key topics of conversation that deserve the most attention this month. If you have any questions or would like to continue the conversation, please reach out.
It’s taken awhile, but the elusive sub-3% annual inflation1 is now a reality, seemingly providing the Federal Reserve with enough justification to cut rates at its September meeting. The Consumer Price Index (CPI) for July increased by 0.2% from June and 2.9% from the previous year, marking the lowest annual rise since March 20211. Shelter costs continue to be a sticky point in the inflation reports and were the main driver of July’s inflation, accounting for 90% of the monthly rise in headline CPI1. Excluding food and energy costs, core CPI rose 3.2% year-over-year, the lowest since April 20211. Fortunately, the price of goods has consistently declined over the year so far, offering needed relief to consumers.
News on the jobs market garnered a lot of attention and seemed to trigger some of the recent market volatility. The US job market showed signs of cooling in July, with nonfarm payrolls increasing by a modest 114,000and the unemployment rate rising to 4.3%, the highest in nearly three years2. Job gains were significantly below expectations and marked one of the smallest increases since the pandemic2. The good news, however, was that the rise in unemployment was primarily driven by new workers entering the labor force and not job losses2.
Despite a weaker jobs market, July retail sales accelerated by the most since January 2023, rising 1%3. Consumers prioritized essential purchases, such as groceries, and held back on discretionary spending3. With weakening consumer confidence and a softening labor market, the outlook suggests that spending will likely remain focused on essentials, with discretionary spending expected to decline further.
The bottom line: Progress has clearly been made in reducing inflation. The question is, will the labor market suffer as a result, or will the economy continue to grow at a reasonable pace? The Federal Reserve is poised to potentially lower interest rates at its September meeting, influenced by cooling inflation and a softening job market. The upcoming Personal Consumption Expenditures Price Index (PCE), along with August inflation and jobs reports, will be key in the Federal Reserve’s next steps. Recent market volatility has followed some of these updates as investors attempt to determine if there are cracks showing in the economy or not. If upcoming reports fail to impress investors, that may continue to be the case leading up to the Federal Reserve’s meeting in September.
Sources:
- Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
- Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
- Census Bureau, https://www.census.gov/retail/sales.html
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The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The ISM Services (formerly Non-Manufacturing) Index released by the Institute for Supply Management (ISM) shows business conditions in the US non-manufacturing sector.
The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
The Bureau of Labor Statistics (BLS) is an agency of the United States Department of Labor. It is the principal fact-finding agency in the broad field of labor economics and statistics and serves as part of the U.S. Federal Statistical System. BLS collects, calculates, analyzes, and publishes data essential to the public, employers, researchers, and government organizations.
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.
The term Institute for Supply Management (ISM) refers to a nonprofit supply management association. Established in 1915, it is the largest organization of its kind. It provides certification, development, education, and research for individuals and corporations in the supply management and purchasing professions.
