High points for coming US economic data

By Theresa Sheehan, Econoday Economist
August 9, 2022

Employment data in the August 1 week affirmed Fed policymakers’ views that the labor market is strong and able to withstand some rate hikes. The huge upside surprise of a 528,000 gain in nonfarm payrolls in July is good evidence that the maximum employment side of the Fed’s dual mandate is so far faring well enough with less monetary stimulus. The unemployment rate declined a tenth to 3.5 percent which suggests the labor market remains tight on the supply side.

The coming week will provide a look at how the price stability side of the mandate is meeting its goals.

The August 8 week has three reports related to inflation, the most important of which is the consumer price index for July at 8:30 ET on Wednesday, August 10. Rapidly falling gasoline prices and moderation in a few other components should bring the year-over-year percent change for total CPI down from 9.1 percent in June, and show a shallower year-over-year core CPI increase from the 5.9 percent in June. One month’s dip in inflationary pressures isn’t a sustained move back toward the Fed’s 2 percent flexible average inflation target, but it is a start. Fed policymakers will also have the CPI numbers for August in hand when they next meet on September 20-21. Between the two reports, expectations for another big rate move may ease.

On a side note, the July CPI-W will be the first clue in how much of a cost-of-living adjustment those on social security can expect to be applied in January 2023. This won’t be finalized until all the data are in for the July-to-September period. If inflation is falling, then the July-only reading could skew expected gains for recipients.

The week will include reports that could further the improvement in the inflation outlook. The Atlanta Fed’s business inflation expectations reading for August at 10:00 ET on Wednesday and the University of Michigan’s preliminary measures of inflation expectations for August at 10:00 ET on Friday will show if businesses and consumers are seeing an ebb in inflation pressures. If so, these could give Fed policymakers an indication that rate hikes are working to reduce demand even those some items on the supply side remain scarce and more expensive.

It is possible that the preliminary University of Michigan consumer sentiment index for August could find consumers a tad more confident about current conditions and for six months from now. The sentiment index is unlikely to budge much from the final reading of 51.5 in July with talk of recession buzzing around. Still, a decent labor market and falling gasoline prices should help lift consumers’ spirits a bit.

There are still plenty of risks and uncertainties facing the US economy, but the data will likely suggest that the third quarter is off to a decent start and in turn lower talk of recession.