Macro Trends/Forecasts

Jeff Miller

"The Man Who Called Dow 20,000" --CNBC

This Week's Data: Implications for the Fed

This has been an interesting week for economic data.   The general implication is hawkish for Fed policy and supportive of a shift in overall asset allocation.  Let’s take a closer look.

JOLTs and a Tight Labor Market

Since even the “experts” do not understand this relatively new report, all we hear about is the number of current job openings.   Instead, we should learn the following:

  • The voluntary quit rate shows the ongoing strength of the labor market.

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  • The ratio of job openings to job seekers shows continuing tightness in the labor market.A pasted image
  • Initial jobless claims declined again.  People are changing jobs, but at their own choice.

Inflation Signs – PPI

The headline PPI report was only an increase of 0.1% but the core rate was an increase of 0.3%.  While pundits often make fun of the core rate (which excludes food and energy) it provides a more meaningful reading.

Pressure on producer prices means either lower profits or passing costs along to consumers.

Inflation – CPI

Once again there is a big discrepancy between the headline number (0.1%) and the core rate increase of 0.3%. This chart shows the most recent effects on a rolling average comparison.

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The Fed prefers the PCE to PPI and CPI data, but they are obviously related.  Here is the likely path of PCE, moving beyond the Fed’s 2% target.

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Retail Sales Remain Solid

Retail sales increased 0.4% versus expectations of 0.2%.   July’s report was revised up from 0.7% to 0.8%.

So far, the consumer-driven part of the economy looks solid.

Conclusion

The week’s data will give the Fed something to think about.  The bond market added slope to the yield curve, reducing recession fears for some.   Meanwhile, the inflation risk has increased.

As always, I’ll have a more detailed report in WTWA, but this focus on the Fed is especially geared to FATrader readers.

Jeff Miller provides Economic Analysis as well as Market Forecasts as one of the original contributing analysts at FATRADER. A quantitative modeling expert and former university professor who is the #1 Economics contributor at Seeking Alpha, Jeff is regarded as an expert on economics, market reaction to news events, and computer-based trading.
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