Consumer prices as measured by the Fed’s preferred measure (The PCE Price Index) likely rose modestly in July from June, with inflation holding steady or edging up a hair in year-over-year terms.
Inflation was faster in the first half of 2023 than the second half, so even if monthly price increases run cool in the second half of 2024, inflation will probably hold steady in year-over-year terms.
July likely saw slower income growth after the monthly jobs report showed a smaller than expected rise in payrolls and a slower increase of hourly earnings. Personal spending growth likely picked up as car dealer sales recovered after the CDK hack. The personal saving rate likely moved lower during the month.
House price index increases likely slowed in June. More homeowners are listing their homes for sale, especially condo owners. And listings for new construction are ample across the fast-growing markets of the Sunbelt. That is slowing home price increases. Pending home sales likely rose slightly in July after a big jump in June, but are still depressed. Pending home sales are a measure of units going under contract, mostly existing units; they should recover more in the fall and winter as mortgage rates fall.
The minutes of the Fed’s July 31 monetary policy decision show that “several” Federal Open Market Committee members saw “a plausible case” for a cut at the meeting, or “could have supported such a decision.”
Members agreed that recent inflation data increase their confidence that inflation is moving toward target; Chair Powell has made “confidence” a key way to describe when the Fed believes inflation is sufficiently controlled to start cutting rates. Regarding the outlook, FOMC members saw less risk that inflation runs over their target, and more risk that the labor market weakens further.
In the annual August preliminary benchmark revision, the Bureau of Labor Statistics revised down the level of employment in March 2024 by 818,000, meaning monthly job growth between March 2023 and March 2024 averaged 68,000 less than previously estimated. Incorporating that revision, the 12-month increase in payrolls in July 2024 was about 164,000 per month, not the 209,000 shown in the monthly jobs report released August 2.
However, this downward revision won’t come as a huge surprise to the FOMC. Their July meeting minutes show that “many participants noted that reported payroll gains might be overstated.”
Additionally, the BLS mid-month report on state employment and unemployment shows that the softness in the July jobs report was not solely in Texas, where Hurricane Beryl created huge disruptions for work and production. Payrolls fell in Missouri in the month, and the unemployment rate rose in a number of states scattered across the East Coast, Midwest, High Plains, and Mountain West. These data further bolster the case for the Fed to start reducing interest rates this fall.
Bill Adams is a senior vice president and chief economist at Comerica. Waran Bhahirethan is a vice president and senior economist at Comerica.
