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.
June saw more progress on inflation, as the Consumer Price Index (CPI) declined by 0.1% month-over-month for the first time since the pandemic began1. The drop was driven by reduced costs for gas and electricity, leading to lower energy prices1. Also, shelter prices had their smallest rise in three years1, offering hope for the stickiest component of CPI. Over the last year, CPI rose by 3%, while used car prices fell by 10.1%1. Core CPI, which excludes food and energy, rose by only 0.1% from May, the smallest increase since 20211. Overall, the latest inflation report provided confidence for the Federal Reserve to consider cutting interest rates, potentially starting in September1.
The labor market continued its gradual slowdown in June, with payrolls increasing by a modest 206K2. June’s hiring pace, which signified the slowest average employment growth over the last three months since early 2021, was further underscored by a downward revision of April and May’s job growth by 111K2. However, more people are entering the workforce as well, ticking the unemployment rate up to 4.1%, the highest since November 20212. Also, income growth eased to 3.9% year-over-year, the smallest annual increase in three years, possibly alleviating some inflationary pressures2.
Across the business landscape, the US ISM Services PMI fell into contraction in June, signaling a possible retreat or slowdown in economic growth as consumers scaled back on non-essential services3. Despite the onset of the summer travel season, spending on leisure activities declined, shifting towards essential expenditures like healthcare3. Additionally, businesses are being more conservative with their inventory levels and strategically reducing inventories in anticipation of continued sluggish demand3. This year has marked the second instance of the ISM Services Index falling into contractionary territory3, a rare occurrence in its 28-year history, highlighting the challenges in the economy’s recovery post-pandemic.
The Bottom Line: All eyes remain on inflation and employment data, as investors look for signs of when officials will feel confident enough to reduce borrowing costs. In a recent interview, Jerome Powell acknowledged that the second-quarter inflation readings add confidence that inflation is sustainably heading toward 2%. Despite this, Federal Reserve officials are concentrating on reducing it further without triggering a spike in unemployment or a recession. While recent data has been favorable for investors anticipating rate cuts, the upcoming consumer expenditures and GDP reports will be crucial in determining the likelihood of a September rate cut or whether investors might need to wait a bit longer.
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
- Institute of Supply Management, https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/june/
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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.
