The Fed has gotten itself into quite the pickle… Parts of the economy are doing so well (employment/wages) that the American Consumer can afford to pay the currently inflated prices. This good news in jobs is causing Inflation to continue to rise, which is bad news. But with the Fed’s singular focus of curbing Inflation, they will need some bad economic headlines to stop consumers from accepting these high prices.
GOOD NEWS FOR THE ECONOMY IS BAD NEWS OF INFLATION
The U.S. over doubled economist expectations by adding 528,000 jobs in July 2022, hitting an ALL-TIME record in payroll employees at 152.536M. This has resulted in 1.8x job openings per unemployed person. This employee demand means that people can afford to spend and not push back against the much higher prices of today. This is what runs the risk of keeping inflation persistently high but also, is a main reason why the economy is healthier than people give it credit for.
BAD NEWS FOR THE ECONOMY IS GOOD NEWS FOR INFLATION
We have now seen signs of the economy cooling with the recent 2 straight quarters of negative GDP growth but as of today, the NBER hasn’t made the official recession call (yet). There was one-time back in 1947 that GDP shrank for 2 straight quarters and the official “recession” call wasn’t made. The Housing market is feeling higher rates as well with sales of previously owned homes fell (-14.2%) from a year ago and 7.3% of weekly home sales were negotiated down in price. The highest it’s been since 2015.
AND we are seeing some signs of Inflationary Relief. National average gas prices declined 76¢ from their prior high to $4.26/gallon. Also, Corn and Wheat prices have come down to their Pre-Russia Ukraine War levels and are down 30-40% from recent highs. Suggesting that the Fed’s moves have had an effect.
In a battle with no winners, the recent stock market rally in July should tell us that analysts think things are better than the sensationalized news headlines infer.
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