Several developments unfolded over the past few days that carry substantial implications for our economic outlook. This week was chock-full of Fed Speak, showcasing FOMC participants' divided views on their preferred path of policy. Fed Governor Philip Jefferson, President Biden's nominee for vice chair, and Philadelphia Fed President Patrick Harker, another voting member, signaled their preference to "skip" a rate hike at the next meeting. Meanwhile, non-voting members Richmond Fed President Tom Barkin and Cleveland Fed President Loretta Mester voiced their willingness to keep going. Although our base case still assumes that the Fed will hold rates at 5.25% in June, persistent inflation leaves the door open for another rate hike this cycle, especially with a U.S. default now seemingly off the table.
This week, both the House and Senate approved a deal between President Biden and Congressional Republicans to suspend the debt ceiling and avoid what would have been the first default in U.S. history. In exchange for suspending the debt limit through the end of next year (after the election), the legislation set discretionary and nondiscretionary spending caps at $1.65 trillion for FY 2024 and $1.67 trillion for FY 2025, implying a downshift in annual spending growth compared to recent years. The deal would also end the pause on student loan repayments, enact modest permitting
reforms for energy-related projects, and add work requirements for certain SNAP and TANF recipients, while exempting populations like veterans and homeless adults from those requirements. The economic benefits of avoiding default cannot be overstated. That said, we expect the caps on fiscal outlays to shave off a modest 0.1 to 0.2 percentage points from annual real GDP growth over the next few years.
This morning's jobs report blew expectations out of the water. The U.S. economy added 339,000 jobs on net in May, dwarfing expectations of a 195,000 gain. The bewildering nonfarm payroll print came on the heels of upward revisions to the prior two months, suggesting employers are even more resilient to macroeconomic headwinds than previously thought. Not all aspects of the report pointed to a white-hot labor market, however. Monthly average hourly earnings growth decelerated to 0.3% in May from April's downwardly revised 0.4% bump, suggesting more plentiful labor supply is easing wage pressures. The unemployment rate also moved up from 3.4% to 3.7%, revealing the largest decline in employment, as measured in the household survey, since April 2022. Although the enduring strength of the labor market continues to baffle observers, we believe the May report gives the Fed just enough room to justify a pause.
JOLTS also surprised to the upside, as job openings popped back up over 10 million in April. This adds to the evidence that the labor market is far from buckling. We caution against reading too much into one month of data, however. The JOLTS series is highly volatile, and the trend in openings is clearly moving downward. Alternative measures also suggest labor demand is softening. For example, Indeed job openings have steadily inched down since the beginning of the year and small business hiring plans in the NFIB survey continue to wane. Although the labor market remains objectively strong compared to its pre-pandemic normal, signs point to a gradual cooling in labor demand.
This Week's State Of The Economy - What Is Ahead? - 18 December 2020
Wells Fargo Economics & Financial Report / Dec 21, 2020
This week marked the first U.S. COVID vaccinations and the imminent rollout of a second vaccine.
The Regional Breakdown Of A Labor Market In Meltdown
Wells Fargo Economics & Financial Report / May 26, 2020
Employment fell in all 50 states and 43 states saw their unemployment rate rise to a record in April. The damage is already hard to fathom-a 28% unemployment rate in Nevada and still another month of job losses ahead.
This Week's State Of The Economy - What Is Ahead? - 23 December 2020
Wells Fargo Economics & Financial Report / Dec 26, 2020
Vaccines are here, but they are not yet widely available in a way that can stem the spread of a disease that grows by 200K a day.
This Week's State Of The Economy - What Is Ahead? - 05 August 2022
Wells Fargo Economics & Financial Report / Aug 08, 2022
The Bureau of Labor Statistics reported this morning that nonfarm payrolls increased 528,000 for the month of July, easily topping estimates, lowering the unemployment rate to 3.5%.
This Week's State Of The Economy - What Is Ahead? - 07 October 2020
Wells Fargo Economics & Financial Report / Oct 10, 2020
In the immediate fallout after the lockdowns in the early stages of this pandemic, there was a lot of discussion about the shape of the recovery.
This Week's State Of The Economy - What Is Ahead? - 07 October 2022
Wells Fargo Economics & Financial Report / Oct 10, 2022
higher interest rates and inflation appear to be weighing on manufacturing and construction, yet service sector activity remains fairly resilient.
This Week's State Of The Economy - What Is Ahead? - 13 November 2020
Wells Fargo Economics & Financial Report / Nov 14, 2020
The combination of the election outcome and a workable vaccine boosted financial markets and set the background music for this week’s short list of indicators.
This Week's State Of The Economy - What Is Ahead? - 08 January 2021
Wells Fargo Economics & Financial Report / Jan 12, 2021
The manufacturing sector is showing a great deal of resilience, with the ISM Manufacturing survey exceeding expectations, at 60.7, and factory orders remaining strong.
This Week's State Of The Economy - What Is Ahead? - 23 September 2020
Wells Fargo Economics & Financial Report / Sep 22, 2020
European activity is surging. Germany and Italy are leading the way, but France is close behind despite an ongoing rise in cases. The Google data are a bit outdated, but are hard to reconcile with today’s weak Eurozone services PMI figures.
This Week's State Of The Economy - What Is Ahead? - 29 January 2021
Wells Fargo Economics & Financial Report / Feb 09, 2021
Economic data came in largely as expected this week and suggest continued economic recovery.
