September Economic Update

Market Summary

August more or less saw the major stock market averages move sideways within the recent two-month ranges while posting a mixed bag of returns between sectors. Optimism surrounding the increasingly likely odds that we will soon have the first Federal Reserve interest rate cut in years was hampered by more decelerating economic data raising concerns of a recession. The S&P 500 led the pack regaining 2.28%, the Nasdaq 100 coming in second with a 1.10% return, and the small cap Russell 2000 lost -1.63%. (1)

Inflation

Positive headway continues for the second month in a row with both headline CPI and Core CPI retreating one tenth of one percent to 2.9% and 3.2%, respectively. While these were not substantial changes and we remain above the inflation goal of 2%, it was enough for the Federal Reserve to state in their Meeting Minutes that their confidence regarding inflation objectives is increasing while implying that an interest rate cut is on the table for the September Fed meeting. (2,3)

Overall, during the Federal Reserve’s July 31st announcement, Chairman Jerome Powell noted recent data has added confidence that inflation is moving in the right direction again while still noting that, “we still need greater confidence on inflation.” Regarding interest rates, Powell stated if inflation continued to move lower into the next interest rate decision in September, then a rate cut, “would be on the table.” (3)

Employment Reports

After last month’s disappointing jobs report from the US Bureau of Labor Statistics, much attention has shifted from inflation concerns over to labor market conditions. The Fed’s increased confidence with meeting inflation goals was in part due to their staff’s weaker economic growth projections for the second half of this year. This was, “largely in response to weaker-than-expected labor market conditions” arising as we move into the tail end of 2024. (3)

More labor market woes have recently arisen including today as of the writing of this newsletter. The already weak jobs report which sparked concerns last month which showed the US only added 114,000 in July, which was the worst since January 2021, was revised even lower to 89,000. The report for August fared better with 142,000 jobs being added into our economy but that remains relatively weak, and these figures are regularly being revised lower after the initial releases. (4)

The August jobs report also showed the continuation of an upward trend for unemployment. The U6 Unemployment Rate measures the percentage of the total US work force that is currently unemployment and actively seeking new employment. That number has risen to 7.9% which is the highest since December 2021 when we were entering into the labor recovery post pandemic. (4)

Looking Forward…

Expectations for an interest rate cut coming at the September 18th Federal Reserve meeting have been increasing, with market participants anticipating a 69% chance of a quarter point rate cut and a 31% probability of a half point decrease. The market is also implying more weak economic data is coming by year-end which would force the Fed to begin more aggressive cuts. Traders are now betting there is a 78% chance that interest rates will be slashed lower by 1.00-1.25% by December. (5)

If the recent trend continues, more attention will be shifting away from inflation data and towards the labor market, manufacturing orders, services data, consumer data, and other cyclical economic data to continually gauge the probability of growth versus the potential for economic contraction into the latter half of this year.

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Monthly Financial Tip:

Buying a new car means buying a rapidly depreciating asset. Buying a quality used car is often the better financial option.

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Citations:

1. WSJ.com, Aug 30, 2024

2. Investing.com, Aug 14, 2024

3. Federal Reserve, Aug 21, 2024

4. Bureau of Labor Statistics, Sept 06, 2024

5. CME Group, Sept 06, 2024

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.