Softening economic data fits Powell's dovish stance
Weekly Bond Commentary
A busy week in economic and financial data helped fill in the picture of how the U.S. economy is performing.
The labor market continues to chug along, though slowing slightly. Weekly jobless claims were unchanged, at 208,000, and continue near the very low end of their multi-decade range, while monthly jobs added eased lower, from 315,000 to 175,000. Though gains were lower, they were more broad-based. The unemployment rate ticked higher, from 3.8% to 3.9%, as average hourly earnings eased lower, from 4.1% to 3.9% over the last year. On average, the economy has added 234,000 jobs per month in the last year, so one month’s lower result is not necessarily a bad omen.
Manufacturing activity was also a bit softer, as shown by the national purchasing manager’s survey. Its prices-paid and employment measures increased, while new orders decreased slightly. Positively, though, higher-than-expected productivity gains may help to explain why corporate profit margins have not been squeezed. The parallel services index also tipped into contractionary territory, as prices-paid rose but employment unexpectedly decreased.
The Federal Reserve met last week, and as expected, did not change its federal funds rate. Fears of a more hawkish press conference were overblown, as Chair Jerome Powell’s tone was quite dovish. The Fed’s rate posture will likely be to hold rates at present high levels for longer than had been anticipated because inflation has proved stubborn. Rate cuts will happen when the Fed gains greater confidence inflation is headed toward 2% or if the labor market seems to be weakening. Either way, more time and more data will be needed to assess the situation.