Four times per year, at every other Federal Open Market Committee meeting, senior Fed officials submit projections for growth, unemployment, and inflation. They also put forth their expectations of the “appropriate” federal funds rate for the end of the next few years. What do the dots in the dot plot tell us about the course of policy action? Not a lot.
The appointment of Jerome “Jay” Powell as Fed chair should result in a smooth transition for monetary policy into early 2017. However, other personnel changes mean greater policy uncertainty as one looks beyond the middle of next year. This comes at a time when the risks of a policy error are increasing.
On Friday, the Commodity Futures Trading Commission (CFTC) approved bitcoin futures trading on the Chicago Mercantile Exchange (CME) and the CBOE Futures Exchange (CFE). Bitcoin has risen by a factor of ten since the start of the year.
Nothing causes more anger, confusion, and bewilderment than the trade deficit – that is, except for the federal budget deficit. In past decades, these were often called “the twin deficits.” They are not identical, but they are related.
Economists view the growth in labor productivity, or output per worker, as the single most important variable in an economy. It’s what lifts the standard of living, helps keep prices low, reduces government budget strains, and drives corporate profits. Over the next few decades, achieving faster productivity growth will be key as labor force growth slows. The outlook is encouraging, but uncertain.
As expected, nonfarm payrolls rebounded from hurricane-related effects. The unemployment rate edged lower, but that may have been noise. Leisure and hospitality was the sector most affected by Hurricane Irma, which might explain the choppiness in average hourly earnings (up 0.5% in September, flat in October).
The economy grew at a 3.0% annual rate in the advance estimate for the third quarter, as the hurricanes appeared to have both positive and negative effects. The figures will be revised, but the story is unlikely to change much.
The Bureau of Economic Analysis will report its advance estimate of 3Q17 GDP growth on Friday. The figures will be revised, but investors should be aware that hurricane effects are likely to distort many of the GDP components.
Beyond all the twists, turns, and quirks in the economic data reports, the overall picture appears largely the same. Growth remains on a moderate track, somewhat beyond a long-term sustainable rate (as the job market continues to tighten).
As expected, hurricanes Harvey and Irma had a significant impact on the nonfarm payroll data. However, it’s impossible to say exactly how much. The distorted September payroll figures were never going to be a factor in the Fed policy outlook. There will be two more employment reports before the mid-December policy meeting and we can expect a recovery from hurricane effects.
Investors don’t pay much attention to the monthly report in personal income and spending. We already have a good handle on income from the employment report. Unit auto sales and the retail sales data tell us a lot about consumer spending.
As expected, the Federal Open Market Committee left the federal funds target range unchanged (at 1.00-1.25%) after its September 19-20 policy meeting. The FOMC also announced the beginning of balance sheet reduction. The Fed had outlined how this would work in mid-June, and officials did a good job of telegraphing when it would start.
In her post-FOMC press conference, Federal Reserve Chair Janet Yellen is expected to provide a concise evaluation of the current economic situation. That includes a discussion about the recent trend in low inflation and the economic impact of hurricanes Harvey and Irma. She is not expected to signal what the Fed will do with short-term interest rates in the months ahead.
Summer is normally a pleasant time, but most Americans are likely to be happy to have August 2017 in the rear view mirror. Civil unrest, tensions abroad, devastation and destruction – yet, the stock market continues to improve.
The exodus of CEO support following President Trump’s response to Charlottesville shook the foundations, but the stock market outlook has remained constructive. Every administration has its share of difficulties early on, many self-inflicted, before settling down.
The July CPI data were a bit softer than anticipated, due partly to a drop in the price index for lodging away from home. Granted, if you exclude everything that went down, the CPI always looks higher, but the underlying trend is not far from the Fed’s earlier expectations (of a gradual move toward the 2% goal).
There’s a fair amount of noise in the monthly employment data, but July figures remained consistent with expectations of moderately strong growth in the near term. One glaring weakness remained.
The advance GDP report for 2Q17 contained few surprises. Growth was largely in line with expectations, leaving growth for the first half of the year at a 1.9% annual rate. Recent reports suggest some loss of momentum for the consumer, but rising real wages ought to provide support.
Samuel Blodget was an early American merchant, amateur architect, and economist. He wrote Economica: A Statistical Manual for the United States, considered to be the first American book on economics.
Fed Chair Janet Yellen covered no new ground in her monetary policy testimony to Congress, but that didn’t stop financial market participants from trying. While the CPI report drew a closer focus, past inflation figures don’t tell us a lot about future inflation.
The June Employment Report was about as much as stock market participants could have hoped for. Nonfarm payrolls rose more than expected, helping to offset fears that the economy is weakening.
Recent economic data reports have helped to fill in the picture of the economy in the first half of the year. However, investors should be more concerned with the prospects for the second half of the year.
Heading into the second half of the year, there are a number of key policy uncertainties in Washington. For the Fed, a clear near-term picture is a contrast to the longer-term outlook where views of the market and the Fed have diverged.
The June 14 Fed policy decision was expected to overshadow the mid-month economic figures. Instead, the soft data reports contrasted with the relatively more upbeat central bank. Did the Fed make a mistake? Or are the financial markets placing too much emphasis on the short-term data?
The market odds of a June 14 Fed rate hike have risen in recent weeks. Another 25-basis-point increase in short-term interest rates is seen as a near lock.
Following the election, stock market participants gained optimism on the view that the new administration would push through a reduction in regulations, sharply boost infrastructure spending, and achieve broad tax reform.
Growth in nonfarm payrolls rebounded in April, following a soft increase in March, consistent with a longer-term downward trend. The unemployment rate fell to 4.4%, the lowest level in over a decade.
Real GDP rose at a 0.7% annual rate in the advance estimate for 1Q17, below the median forecast (+1.1%). Relatively speaking, that’s not a huge forecasting error. The headline growth figure will be revised and revised and revised over the next few months.
Consumer spending accounts for 69% of Gross Domestic Product. Last week, the data on the household sector were mixed. The Conference Board’s Consumer Confidence Index surged to a 16-year high.
It’s a long-standing adage in Washington that the federal debt is a problem only when the other party is in charge. Republicans label Democrats as the party of “tax and spend,” while Republicans are deemed the party of “borrow and spend.”
Nonfarm payrolls were reported to have risen by “just” 98,000 in March, while the unemployment rate fell to its lowest level (4.5%) since May 2007. The March 14-15 FOMC minutes “revealed” that officials plan to begin reducing the size of the Fed’s balance sheet later this year.
Upcoming data reports will help to fill in the near-term picture of the economy, while developments in Washington will lead to a reassessment of the intermediate outlook.
The Fed’s outlook on the economy hasn’t changed much since December. In turn, policy expectations are largely the same as well. Officials are comfortable enough in their outlooks to continue gradually normalizing monetary policy, but they don’t see enough pressure to move more rapidly.
Prior to seasonal adjustment, the U.S. economy added more than a million jobs in February (unadjusted payrolls rose by 831,000 in February 2016 and by 832,000 in February 2015).
The majority of U.S. economic data are based on statistical samples and the various figures are typically adjusted for seasonal variation. That means that the numbers are subject to some level of uncertainty.
President Trump is expected to announce a revised tax cut plan soon. In the meantime, it’s worth revisiting how the sausage gets made in Washington. By law, tax code changes must originate in the House of Representatives, and the Senate will have its say.
Fed Chair Janet Yellen will present her monetary policy testimony to Congress on Tuesday and Wednesday. We may not learn much new regarding the pace of future rate increases (which will remain data-dependent) and she’s certain to avoid getting into any discussion of fiscal policy.
January economic data are relatively unreliable, but recent figures paint a fairly consistent picture of where we are headed in the near term. While there is reason to be optimistic, it’s still a mixed bag, with some concerns about what we’ll see coming out of Washington over the next several months.
Real GDP rose at a 1.9% annual rate in the initial estimate for 4Q16, with the headline growth figure held down by a wider trade deficit. That does not mean that foreign trade is a drag on the U.S. economy.
It goes without saying that there is a sharp contrast between the economic views of the incoming administration and those of the Federal Reserve. President Trump, and most of the individuals who voted for him, sees a weak economy, devastated by job losses in manufacturing. The Federal Reserve sees an economy nearing full employment. So who’s correct?
Since the November election, the financial markets have priced in a more friendly business environment, with growth boosted by expansionary fiscal policy. However, the White House does not have absolute power.
The December Employment Report showed the job market to be in good shape. The pace of job growth slowed in 2016, partly reflecting tighter labor market conditions.
The outlook for 2017 is now shaping up as a battle of ideas, though few seem to be realizing it yet. The stock market has risen since the election.
Federal Reserve policymakers are widely expected to raise short-term interest rates this week. The policy statement should continue to suggest that, while the pace of tightening is expected to be gradual, action will remain data-dependent.
The November job market report was a mixed bag. Nonfarm payrolls were in line with expectations, continuing to reflect a more moderate pace of job growth in 2016 (although still relatively strong).
Following the surprising election of Donald Trump and the news that Republicans had held on to the House and Senate, the stock market rallied.
The October job market data were not far from expectations, consistent with a further tightening in labor market conditions.
The U.S. economy is complex. Most people want to sum it up in one simple number: real GDP growth.
