Employment data was inconclusive, so public eyes turn to CPI
Last week’s inconclusive jobs report means this week’s inflation report could have a huge impact.
The Department of Labor reported that the economy worsened further. 275,000 jobs, far more than expected According to a survey of establishments, there was a significant downward revision in February compared to the previous month. Average hourly wages rose less than expected, but weekly working hours unexpectedly lengthened.
The Household Survey showed that the labor force participation rate remained stable for three consecutive months, suggesting stabilization is underway. Workers are no longer drawn into the labor force From an economic aspect. If this trend continues, continued demand for labor will mean a tightening of the labor market, which could lead to further inflationary pressures.
The household budget survey revealed that Employment fell by 184,000 people, the number of unemployed rose to 334,000. Some have pointed to this as a sign that the labor market may be weaker than the Establishment Survey employment growth indicates, but that is not necessarily the case. Historically, discrepancies between household and establishment surveys have tended to be resolved by bringing the results of household surveys closer to those of establishment surveys.
The number of manufacturing employees in the establishment survey decreased by 4,000 people. This was a surprising result given the growth in job openings seen in the Job Openings and Labor Turnover Survey (JOLTS) and the S&P Global Purchasing Managers Survey, which showed a sharp increase in the manufacturing workforce. Consensus forecasts were for 10,000 jobs to be added, with S&P Global reporting that “manufacturing has recorded the fastest rate of job creation since last September.” This discrepancy may indicate that the February survey will be revised upward.
Service field It reportedly added 204,000 jobs, including 91,000 in education and health and 58,000 in leisure and hospitality. These have lagged other sectors in terms of post-pandemic job growth and are likely to continue growing in the coming months. A tighter service-sector labor market could put additional pressure on services inflation, which Fed officials have signaled they are focused on.
The report didn’t find much evidence of overheating, but also suggested: There may not be much softening.. This is consistent with evidence suggesting that the downward trend in inflation may be stalling at an undesirably high rate.
In a recent study by economists on labor market trends, Federal Reserve Bank of New York provides additional evidence for this.Economists are using a custom measure of wage growth persistence that they call Trends in wage inflation (TWIn for short) This is trying to figure out what is considered “core” wage inflation. They found that while recent high wage inflation slowed last year, it appears to be no longer coming down and remains too high to match the Fed’s 2% inflation target.
“Our main finding is that TWin has changed little in recent months, after falling sharply from a peak of 7% in late 2021 to around 5% in early 2023, with modest growth in nominal wages This indicates that there is a possibility that the situation is stagnant.”economist I have written On the New York Fed’s Liberty Street Economics Blog.
What to expect when predicting CPI
On Tuesday, the Labor Department is expected to release a report on the issue. Consumer Price Index (CPI) For February. Last month, his core CPI increased by 0.4% for the month (0.392% before rounding) and his overall CPI increased by 0.3% (0.305 before rounding). The consensus forecast was for core and headline inflation to switch places, with core inflation rising 0.3% and headline inflation rising 0.4%. The Cleveland Fed currently forecasts headline inflation of 0.43% and core inflation of 0.32%, which is in line with economists’ expectations.
If these numbers come out as expected, the reaction will likely be very similar to the reaction to the jobs report. In other words, it’s a “wait and see what happens next” report. If inflation rates, especially core inflation rates, are significantly lower than expected, the market may start to rise. The date of the Fed’s first interest rate cut will be brought forward from the current June forecast to May.. Given the resilience of the job market, even without CPI data, there’s a good chance the Fed will consider cutting interest rates in March, even if we’re not in full deflation.
Given the unexpected upward revision to February’s employment report, it is possible that the inflation report will be better than expected. As a result, there is a high possibility that expectations for a rate cut will increase until the July meeting.of upside down surprise More persistent service inflation may be the culprit. Core services rose 0.7% in January, but this report predicts a more modest (but still high) 0.5% rise.
If the prices of core goods rise, the reaction will be even greater. These are decreasing and are expected to continue decreasing in February.but producer price index Last month’s PPI showed a 0.3% increase in core goods prices at both the final and intermediate demand stages, which may portend a return to goods inflation in the CPI. Most analysts expect commodity prices to continue falling or moving sideways for at least several more months. This could shock the market.
In testimony to Congress last week, he said: Jerome Powell Fed Chairman He reiterated his belief that the Fed needs more confidence that inflation will sustainably move toward 2% before cutting rates. At the very least, this should mean that inflation will stop accelerating.
