by tyler | Oct 3, 2023 | CNN, economy
The number of job openings at US employers unexpectedly jumped in August, a testament to the continued resilience of the labor market, according to new data released Tuesday by the Bureau of Labor Statistics.
There were an estimated 9.61 million open jobs in August, according to seasonally adjusted data from the BLS’ latest monthly Job Openings and Labor Turnover Survey (JOLTS) report. That’s up from July’s upwardly revised estimate of 8.92 million openings.
The consensus estimate from economists was for 8.8 million openings, according to Refinitiv.
Some of the biggest increases in postings were in professional and business services, finance, other services and nondurable goods manufacturing, according to the report.
While August’s uptick in openings bucks a three-month decline, the number of available jobs as estimated by JOLTS remains considerably lower than the record high of 12.03 million set in the spring of 2022. Year to date, openings are averaging 9.74 million per month, BLS data shows.
Additionally, data from online employment sites show that job postings have already fallen to, and in some cases below, pre-pandemic levels, Julia Pollak, chief economist of ZipRecruiter, told CNN.
“That [JOLTS] series is very zigzaggy; because it’s based on such a small sample, there’s quite a lot of statistical noise,” she said. “So, we shouldn’t read too much into one month either way. The longer-term trend is a gradual return to pre-pandemic levels.”
Other key measurements of labor movement tracked as part of the JOLTS report showed minimal movement.
The number of new hires ticked up to 5.86 million from 5.82 million in July, the number of workers quitting their jobs increased to 3.64 million from 3.62 million and layoffs held steady at 1.68 million.
“The big fear here is that we decrease openings and that we increase layoffs at the same time, and that would mean that a lot of folks are out of work,” Layla O’Kane, research director and senior economist for labor market research firm Lightcast, told CNN. “So I think that having layoffs stay about the same is a really good sign for workers in general.”
Those JOLTS metrics and other measures of labor market tightness do indicate that August’s openings figure may be a “one-month blip” and that those should continue their modest descent in the coming months, she said.
“We looked at [indicators] like employers offering sign-on bonuses, offering additional training, retirement benefits or tuition benefits — other things that employers use when there’s a really tight labor market and they’re trying to get workers,” she said.
Those declined in August, she noted.
Also, despite the increase in openings, the uptick in people returning to the labor force in August means that there are still 1.5 open jobs for every unemployed person looking for one, BLS data shows. While it’s down from the 1.7 seen this time last year, it’s still above what was seen pre-pandemic, when it hovered between 1 and 1.2 jobs per job seeker.
Federal Reserve officials have frequently pointed to the robust labor market, particularly the imbalance of job postings to job seekers, as a key factor in helping to lower inflation.
“The Fed’s massive rate hikes are absolutely crushing it when it comes to core consumer inflation, but the labor market has escaped the wrath of tighter monetary policy with job openings erasing the soft spot for job offerings seen at the start of summer,” said Christopher Rupkey, chief economist at FwdBonds.
Investors balked at the unexpected rise. Stocks fell in morning trading, with the three major indexes dipping into the red and the Dow dropping more than 350 points.
Plenty more labor market data is to come this week: ADP will release its September private-sector payrolls and wages report on Wednesday, the latest jobless claims and monthly job cuts reports are due out Thursday and the Labor Department’s monthly jobs report for September lands Friday morning.
by tyler | Aug 26, 2023 | CNN, economy
Panama is about halfway through its rainy season right now, and one of the wettest countries in the world is having one of its driest seasons on record.
At the Panama Canal, where freshwater serves as the lifeblood for its lock-driven operations, the lack of abundant rainfall is leading to lower water levels and putting a squeeze on a critical international shipping artery: Canal authorities have imposed restrictions on vessel weights and daily traffic.
Just this week, the Panama Canal Authority extended those restrictions for at least another 10 months.
While the direct impact to US manufacturers, retailers and consumers appears to be minimal right now, the potential for broader disruption is growing.
It’s another instance of a weather-impacted waterway slowing down the flows of critical freight — like shallower levels in the Rhine River and the mighty Mississippi or the high winds and sandstorm blamed for making the massive Ever Given vessel run aground in the Suez Canal two years ago.
Whether driven by climate, weather, geopolitics or some other unforeseen circumstance, any increase in maritime choke points could spell trouble for the global supply chain networks that have run much more smoothly since their pandemic-era upheavals.
“About 80% of our merchandise in trade is moved via vessel over the water,” said Janelle Griffith, North American logistics leader for insurance brokerage and risk advisory firm Marsh. “So we actually should be concerned when we see those sorts of blockages. And, yes, it does have global ramifications … when you have a blockage in one part of the supply chain, the rest of the supply chain is automatically affected.”
The Panama Canal relies on water from the neighboring freshwater lakes. A lock system then uses massive amounts of water — at least 50 million gallons of it — to float each vessel through the canal.
Normally, at this time of year, the lake levels are increasing. However, rainfall in Panama this spring and summer has been the lowest since the turn of the century, said Jon Davis, chief meteorologist at Everstream Analytics.
“It doesn’t mean that freshwater lake levels are going to decline, but we don’t see any significant improvement here upcoming as we look into next month,” he said. “And with El Niño beginning to intensify and every climate model out there indicating that El Niño will continue to intensify through the rest of this year and into early 2024, that is a concern longer term.”
That could lead to further drier conditions across the southern portion of Central America, including Panama, he said.
“We never know the magnitudes of disruptions, and we never know how backed up of a supply chain we’ll get; it certainly looks like we’re going down that direction of increasing problems,” he said.
But from a transportation standpoint beyond Panama, the next shoe to drop could be the Mississippi River, Davis said.
During the past 30 days, rainfall along the southern Mississippi River has been well below normal. Some of the variances in rainfall are among the lowest since 1893, Davis said.
The dry pattern, along with the record heat seen along the Mississippi from Minneapolis to New Orleans, is expected to result in river levels dropping into the first part of next month, he said.
Lower water levels could lead to restrictions at a time when crops in America’s heartland are being harvested and barged down the river to domestic and export markets.
“So you’re dealing with a situation where we have issues in Panama, and we likely will have some issues on the Mississippi with movement of commodities, especially agricultural commodities,” he said. “And so you deal with a compounding supply chain issue. And when you have two disruptions versus just one, that is magnified overall.”
For now, general waiting times have spiked at the Panama Canal. Container ships, which have been prioritized, have not been significantly impacted by the restrictions, according to Everstream Analytics. As of mid-August there were about 135 ships waiting at both ends of the canal, up from 29 the month before, Everstream noted, adding that the ships waiting are typically gas tankers or bulk carriers.
Still, the number of ships waiting five days or longer continues to grow, further lengthening a bottleneck that will start to impact service reliability and cause shipment delays across the United States and Europe, according to Everstream.
“Most ocean carriers have had to reduce the load on their ships, but so far that hasn’t had a significant effect on schedules and freight rates,” Everstream Analytics wrote via email to CNN. “However, if container lines are forced to continue to load fewer containers, we could see issues for US companies trying to replenish inventories ahead of the year-end holiday season — for everything from Christmas decorations to furniture and toys.”
As of this week, key US ports report they haven’t seen any impact from the Panama Canal restrictions and delays.
“We’ve seen no services yet shift from Panama Canal to Los Angeles,” Phillip Sanfield, spokesperson for the Port of Los Angeles, told CNN via email. “We’d expect the Suez Canal to see the first boost in traffic.”
The New York-area ports also have not seen a noticeable shift in traffic, said Amanda Kwan, spokesperson for the Port Authority of New York and New Jersey.
The National Retail Federation earlier this month told CNN that their members hadn’t reported any impacts but were working with their supply chain partners, including the ocean carrier, to mitigate any risk from the delays.
Had this occurred before the pandemic lockdowns and the drastic swings in consumer spending patterns that mangled supply chains, it might have been a different story.
“Because of what happened in 2021, companies have diversified their supply chains,” Kwan said.
Additionally, because ordering patterns shifted from “just in time” to “just in case,” warehouses became plumb full of products, and those inventory levels remain high enough as consumers have spent less on stuff and more on intangibles like Taylor Swift tickets.
With any delay comes increased hurdles for those all along the supply chain, but many companies have taken steps such as reshoring and nearshoring to mitigate risks, said Kamala Raman, vice president and team manager at Gartner’s logistics, customer fulfillment and network design.
“There will always be unknown risks, and there are known risks,” she told CNN. “If you want to be resilient, you’ve got to know what a Plan B is.”
It’s possible that retail importers are “spooked” by these developments, said Peter Sand, chief analyst at Xeneta, an ocean and air freight marketing analytics company.
“It’s clear that they are running inventories that are adjusted to the level of demand right now,” he said.
As the US economy, labor market and consumer spending remain resilient, there’s a possibility that demand could spike — which could lead to a situation where delays in shipping mean a less diverse product selection or, worse, empty shelves, he said.
“There’s a risk here — and all alternatives come with a price tag and longer time for goods to come from its origin to its final destination,” Sand said.
by tyler | Aug 4, 2023 | CNN, economy
The US job market has returned to pre-pandemic form.
Employers added just 187,000 jobs in July, slightly above the monthly average seen in the decade before the pandemic, according to new data released Friday by the Bureau of Labor Statistics.
Economists were expecting a net gain of 200,000 jobs last month. June’s job growth was revised down to 185,000 jobs from 209,000.
“The labor market’s still resilient, there’s still more job opportunities out there than there are candidates looking for work,” said Amy Glaser, senior vice president at staffing firm Adecco. “It matches what we’re seeing, and I think it’s going to continue in this manner.”
July’s headline number and the downward revisions to the monthly job total for May and June (down 25,000 jobs and 24,000 jobs, respectively), are further indications that the nation’s labor market is gradually cooling off. Moreover, it further fuels the notion that the Federal Reserve can achieve a “soft landing” of reining in inflation without massive layoffs.
And although the strong jobs data lands just days after the United States was downgraded by Fitch Rating for its fiscal health, Friday’s report is also the latest in the line of positive economic news that either kicks recession predictions further down the road or erases them entirely.
The July unemployment rate ticked down to 3.5%, from 3.6%. During the past 16 months, the jobless rate has hovered between 3.5% and 3.7% — levels not seen in more than 50 years.
“It’s kind of the Goldilocks economy,” Brian Bethune, economist and professor at Boston College, told CNN. “It’s not too fast, and it’s not too slow, and that’s precisely where you want to be.”
There has to be sufficient growth to generate productivity gains, which are crucial for keeping inflation down, he said.
The Fed is in the throes of a 16-month campaign to try to curb decades-high inflation by suppressing demand. The central bank has raised its benchmark interest rate 11 times from essentially 0 to a range of 5.25% and 5.5%, a 22-year high.
Key inflation gauges have showed that price increases have cooled considerably during the past year while the US economy continues to grow.
Industries seeing the largest job gains in July were health care, social assistance, financial activities and wholesale trade.
Gains were more muted in the leisure and hospitality industry, which has been hiring like gangbusters to back fill deep pandemic losses and keep up with consumers who have a seemingly insatiable (and understandable) demand for out-of-the-house experiences.
“There are weaker gains [in leisure and hospitality], although they remain understaffed relative to pre-Covid levels,” Andrew Patterson, global chief economist with Vanguard’s Investment Strategy Group, told CNN. “But that might be a sign of maybe a cooldown in discretionary spending.”
Fed officials have been hoping their aggressive rate-hiking campaign would bring about a slowdown in the job market — especially in wage gains, which are viewed as a contributor to inflation.
Economists were expecting to see a slight moderation in wage gains; however, those held steady for the second-consecutive month.
Friday’s report showed that average hourly earnings growth was unchanged at 0.4% from the month before and also unchanged at 4.4% year-over-year.
“The Fed’s going to want to see that come down,” Patterson said. “So, reason to believe that there’s signs of weakening in the labor market, but the Fed still has more work to do.”
Economists had projected a monthly gain of 0.3% and a 4.2% annual increase, according to Refinitiv.
Labor force participation also held steady at a 62.6% rate, according to the report.
Jobs openings are plentiful (there were 9.6 million of them in June), people are getting hired, and even though there are fewer people looking for a job, they’re staying longer on the unemployment rolls.
In July, the share of workers who have been out of a job for more than three and a half months jumped 3 percentage points to 36.9%, the highest level in more than a year, according to Friday’s report.
Within that group, the share of unemployed people who have been looking for work for between 15 weeks and six months increased to its largest share since November 2020, BLS data shows.
The labor market remains tight by historical standards; however, finding workers and filling jobs could be heavily influenced by factors such as skills, geography, and inflation, Giacomo Santangelo, an economist with employment website Monster and a senior lecturer of economics at Fordham University, told CNN earlier this week.
Even though certain industries (like health care) need employees, that’s not a simple transition for workers such as longtime truck drivers. And even though there may be jobs available in one’s field in another state, that relocation isn’t simple.
Inflation also plays a role, Santangelo said.
“Just because there’s a job opening doesn’t necessarily mean that job opening is going to be taken by an unemployed person,” he said. “We could, in fact, find a fully employed person taking on additional work in order to meet the labor demands as well as catch up with inflation.”
For the most part, it’s been steady as she goes for the US jobs market.
The labor market has hit a smooth stretch of track after being on a three-year-long rollercoaster ride full of unexpected turns. This time last year, job openings were sinking and economists were expecting that payroll gains would settle down. Instead, the July 2022 jobs report delivered a massive surprise of 568,000 positions added — more than double expectations.
There was little shock factor this time around: July’s 187,000 net job gains were on par with the revised 185,000 gains in June.
“This is a remarkably unremarkable report,” Rucha Vankudre, Lightcast’s senior economist, said in commentary. “Everything is trending as expected, which is a good thing.”
The US economy has added jobs now for 31 straight months, and its monthly job gains are settling in near the monthly average of 184,000 jobs seen in the decade before the pandemic, when the nation saw its last major economic expansion.
What’s helping to drive that strong and steady growth this time has been the jobs market itself: The robust and tight labor market has kept wages growing, which in turn has helped bolster consumer spending, which had fed the demand that in turn required businesses to hire more workers.
The latest stretch of data seem to indicate that the labor market is settling into a steady state, where monthly employment gains might fluctuate in the range of 150,000 to 180,000, said Boston College’s Bethune.
“Now, if we can get some stability in terms of the thinking of where the economy is going … this recession obsession, and if the Federal Reserve can see the light that there is a possibility to grow out of the inflation problem,” he said, adding that could help fuel investment and stabilize the financial system.
Other economists say it might not be enough, and they expect to see a further deterioration in the labor market to help inflation come down to the Fed’s 2% target.
“We believe that unemployment probably has to get somewhere around 4.5% to get the downward pressure you need on wages to achieve that 2% target,” Vanguard’s Patterson said.
The Fed bases its 2% target on the core Personal Consumption Expenditures index, which measured 4.1% in June, according to Commerce Department data released last week. Next week, the BLS will release two key inflation reports for July: the Consumer Price Index and the Producer Price Index.
by tyler | Jul 6, 2023 | CNN, economy
US companies saw a massive, unexpected spike in hiring activity in June, according to private payroll processor ADP’s latest employment report, released Thursday morning.
ADP’s National Employment Report, produced in a collaboration with the Stanford Digital Economy Lab, showed that the private sector added 497,000 jobs last month, far exceeding economists’ expectations for 228,000 jobs and ADP’s May total of 267,000 hires.
While ADP’s tabulations don’t always correlate with the official federal jobs report, it’s sometimes viewed as a proxy for overall hiring activity. And by that measure, Thursday’s blockbuster jump is yet another indicator that when the June jobs report lands on Friday, it’s all but certain to show that the US labor market has added jobs for 30 consecutive months.
While the current employment growth pales in comparison to the labor market expansion seen between 2010 and 2019, when there were a record 100 months of job growth, it’s the strength of this current streak that continues to defy expectations: The above-average gains come at a time of elevated, but waning, inflation as well as a historic spike in interest rates resulting from a Federal Reserve counteroffensive to rising prices.
The 1.57 million jobs added so far this year mark the 10th highest January-to-May total in records that go back to 1939, Bureau of Labor Statistics data shows. And this year’s monthly average of 314,000 net job gains far exceeds what was seen before the pandemic, including during that 100-month stretch post-Great Recession.
Still, some economists believe that it’s only a matter of time before the weight of those and other external factors will be too much for employers to handle.
Sarah House, senior economist at Wells Fargo, said she’s expecting a “gradual cooling” to wash over the labor market.
“The jobs market is not collapsing,” she said. “But as we get further away from the [pandemic] reopening, the impact of tighter monetary policy increasingly bites. We do look for the job gains to continue to ease on trend.”
Economists expect that June’s job gains will be lower than that average and also down from the 339,000 jobs added in May. Consensus estimates are for a net gain of 225,000 jobs last month, according to Refinitiv. (Nevertheless, the 82 forecasts from economists that make up that consensus vary widely — from 110,000 to 288,000 jobs).
The unemployment rate is expected to dip to 3.6% from 3.7%, according to the Refinitiv estimates, which range from 3.4% to 3.8%.
Economists’ crystal balls could become far less opaque by midday Thursday.
The timing of the Fourth of July holiday resulted in a load of labor market data landing within 24 hours of the government’s monthly jobs report. During typical months, reports such as the BLS’ Job Openings and Labor Turnover Survey (JOLTS) and payroll processor ADP’s private-sector payrolls survey are released on Tuesdays and Wednesdays, respectively, giving economists and the markets time to digest key indicators.
Instead, ADP released its report minutes before the weekly jobless claims were published. JOLTS is set be released 90 minutes thereafter.
Consensus estimates for ADP’s report are for 228,000 net job gains in the private sector during June, according to Refinitiv estimates, which have an even wilder range of 95,000 to 334,000 jobs. The actual tally for June of 497,000 jobs added, however, blew those estimates out of the water.
The bulk of the gains came from service industries, specifically leisure and hospitality businesses, according to ADP. However, there are indications that hiring activity may be peaking, noted Nela Richardson, ADP’s chief economist.
“Wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge,” she said in a statement.
For JOLTS, economists expected US job openings in May dropped slightly to 9.94 million, from 10.1 million in April.
In May, job openings fell to 9.82 million, dropping from an upwardly revised 10.3 million in April, according to the BLS’ latest JOLTS report.
The May JOLTS data showed that the number of new hires rose to 6.21 million from 6.1 million, quits jumped up to 4.02 million from 3.77 million and layoffs dipped to 1.56 million from 1.59 million.
Weekly jobless claims increased to 248,000 for the week ended July 1, the Department of Labor reported Thursday.
Although the weekly claims data is highly volatile and frequently revised, the four-week average has trended up in recent weeks, providing another indication of softening in the labor market.
Mass layoff announcements — primarily from large tech firms recalibrating after the pandemic boom — have peppered the headlines during the past several months. However, overall jobless claims have edged up only slightly, and have remained below pre-pandemic averages.
And those job losses have come in fits and starts.
US employers announced 40,709 job cuts in June, the lowest monthly total since October 2022, according to data released Thursday morning by outplacement firm Challenger, Gray & Christmas.
Still, excluding the deep job losses seen in 2020, the 458,209 layoff total announced in the first half of this year is the highest January to June total since 2009, when 896,675 cuts were announced, according to the Challenger Report for June. The technology industry continues to account for the lion’s share of the cuts.
“The drop in cuts is not unusual for the summer months; in fact, June is historically the slowest month on average for announcements,” Andy Challenger, senior vice president of Challenger, Gray & Christmas, said in a statement. “It is also possible that the deep job losses predicted due to inflation and interest rates will not come to pass, particularly as the Fed holds rates.”
The nation’s jobless rate spiked in May, jumping to 3.7% from 3.4%. The sudden and sharp increase in the unemployment rate was largely unexpected — especially considering the strong job gains.
The monthly jobs report is composed of two surveys to measure employment levels and activity: one that surveys businesses about employment, hours and earnings; and the other of households to obtain the labor force status of the population with demographic details. The unemployment rate comes from the latter, which is often considered to be volatile because of a smaller sample size.
While some economists highlighted the divergence between the two surveys in May — household employment notably fell by 310,000 jobs — others say it might not be a one-month blip.
“It likely ticked higher in June to 3.9% with the entry of recent college graduates to the jobs market and slowing reemployment among workers who were recently laid off,” Aaron Terrazas, Glassdoor’s chief economist, said in commentary issued last week. “If this occurs, the unemployment rate will have increased 0.5 percentage points in two months — an important benchmark for many economists.”
Recent job market data shows that more businesses are “labor hoarding” by maintaining headcounts in spite of softening demand. Driving that in part are severe worker shortages experienced during the pandemic recovery as well as a broader demographic shift of the Baby Boomer generation aging out of the workforce, House said.
Given that, she said, “we do think that businesses will be a little bit more reluctant to let workers go.”
And that helps the argument that the post-pandemic economy could achieve a soft landing — a reduction in inflation without a large loss of employment or triggering of a recession, she said.
“The intention might be to keep workers on, come what may, but when push comes to shove, their finances might dictate otherwise,” she said.
by tyler | Jul 6, 2023 | CNN, economy
The number of available jobs in the United States dropped in May after an uptick the month before, the Bureau of Labor Statistics reported Thursday.
Job openings fell to 9.82 million at the end of May, dropping from an upwardly revised 10.3 million in April, according to the BLS’ latest Job Openings and Labor Turnover Survey report.
Economists had projected that openings fell to 9.935 million for May, according to Refinitiv.
The May JOLTS data showed that the number of new hires rose to 6.21 million from 6.1 million, quits jumped up to 4.02 million from 3.77 million and layoffs dipped to 1.56 million from 1.59 million.
The Federal Reserve has been hoping to see more slack in the labor market, since an imbalance between worker demand and supply could cause wages to rise and, ultimately, add upward pressure to inflation. The central bank has tried to tame inflation with 10 consecutive rate hikes, followed by a pause at its June meeting.
Openings have cooled considerably from their 12 million peak in March of last year; however, those and other key labor turnover data points remain far afield of their pre-pandemic levels.
At the end of May, openings were 40% higher, layoffs were 21% fewer, and quits were 15% above February 2020 levels, said Julia Pollak, chief economist for online job site ZipRecruiter.
“This is still a tremendously strong labor market,” she said.
With quits popping back up above 4 million for the first time since December, workers continue to have leverage in this job market, she added.
“It definitely suggests that employers continue to be in a bit of a bind and have trouble recruiting and retaining workers,” Pollak said, adding that this stretch of decades-high inflation has played its part. “Many companies have given workers large raises; but in inflation-adjusted terms, they’ve actually seen their real earnings fall, and workers are still looking for higher-wage jobs that will restore their purchasing power.”
The latest JOLTS report also reinforces other recent labor market data that suggests employers are trying to hold on to workers rather than pare down headcounts.
“There was this correction based on over-hiring during the pandemic, and I think we are seeing that smooth out,” said Layla O’Kane, senior economist for labor market analytics firm Lightcast, during a LinkedIn Live webinar on Thursday. “In the JOLTS report, we have never seen layoffs spread across the whole economy in the last six months. As much as there’s been a lot of media talk about the tech sector layoffs, I do think those are nudging down, based on this report.”
“And we’re not seeing layoffs ricochet into other areas of the economy, which is something we’ve … worried about,” she added.
That trend was also seen Thursday in a separate report that showed layoff activity had slowed considerably from the past few months.
US employers announced 40,709 job cuts in June, the lowest monthly total since October 2022, according to data released Thursday morning by outplacement firm Challenger, Gray & Christmas.
Excluding the deep job losses seen in 2020, the 458,209 layoff total announced in the first half of this year is the highest January-to-June total since 2009, when 896,675 cuts were announced, according to the Challenger report for June. The technology industry continues to account for the lion’s share of the cuts.
by tyler | Jun 30, 2023 | CNN, economy
The Federal Reserve’s preferred inflation gauge cooled off last month, and consumers reined in some spending as the economy slows, according to data released Friday by the Commerce Department.
The Personal Consumption Expenditures price index rose 3.8% for the 12 months ended in May, which was down from the revised 4.3% annual increase seen in April, according to the report.
The headline PCE index is at its lowest annual level since April 2021. On a monthly basis, prices were up a mere 0.1%.
Personal spending ticked up by just 0.1%, a more moderate pace than April’s revised 0.6% growth rate. When adjusting for inflation, consumer spending was flat.
In May, consumers continued to put their dollars toward services — particularly for medical care and travel — while cutting back on buying goods, especially bigger-ticket items like cars and appliances.
The core PCE index, which is more closely watched because it strips out volatile food and energy prices, inched down to 4.6% from 4.7%, landing at its lowest point since October 2021. Although the index slightly retreated, the latest report showed that core services cooled to an annualized rate of 2.8%, the lowest since July 2022, Diane Swonk, KPMG’s chief economist, told CNN.
“One month does not a trend make … but we’re moving in the right direction on momentum, even though the year-over-year [data remains elevated],” she said.
On a monthly basis, the core index was up 0.3%.
The data in recent months shows a gradual cooling in consumer spending, Gregory Daco, chief economist at EY-Parthenon, told CNN.
“It’s not a retrenchment, but it is a notable and visible cooling of consumer spending activity,” he said.
Friday’s report showed that wage growth helped to lift personal incomes in May by 0.4% on a nominal basis and by 0.3% when accounting for inflation.
With fewer dollars flowing outward last month, consumers were able to sock away more money: The rate of savings as a percentage of disposable income rose to 4.6%, an increase of 0.3 percentage points from April. The saving rate has been above 4% since the beginning of the year, marking a bounce back from the 17-year low of 2.7% hit last summer when post-pandemic pent-up demand was on full display.
“The slowing in consumer spending and inflation in May points to an economy losing momentum,” Abby Omodunbi, PNC senior economist, wrote in a note Friday. “While consumers and businesses continue to show remarkable resilience, economic headwinds are increasing.”
Forecasts for a mild recession remain on table, but some economists and government officials, such as Treasury Secretary Janet Yellen, believe a soft landing can’t be ruled out entirely.
On Friday, when speaking in New Orleans, Secretary Yellen said she believes that inflation can continue to come down without expense to the robust economic recovery following the pandemic.
“For a year now, we have heard our fair share of predictions about an imminent recession — with forecasters projecting one by the end of 2022, then by the start of 2023, then by the middle of this year,” Yellen said, according to prepared remarks.”But our economy has proven more resilient than many had thought. I continue to believe that there is a path to reducing inflation while maintaining a healthy labor market.
She added: “Without downplaying the significant risks ahead, the evidence that we’ve seen so far suggests that we are on that path.”
The PCE indexes are part of the Personal Income and Outlays report, which provides a more comprehensive look at shifts in prices, including how consumers respond to them and how much consumers are spending, bringing in and saving.
The report is watched like a hawk by the Fed, which earlier this month opted not to hike its benchmark rate for an 11th consecutive time, instead pausing to review the economic data, banking activity as well as the effects of monetary tightening.
Most Fed officials estimate that two more quarter-point rate hikes will occur this year and most don’t expect inflation to fall down to the central bank’s 2% target until 2025.
“There were no fireworks within the Fed’s favorite inflation report today,” George Mateyo, chief investment officer for KeyBank, wrote in a statement. “Today’s data shows economic resilience and the disinflationary narrative are becoming more evident, but additional proof is needed. Right now, the Fed’s job is not clear cut. While they may not be done with rate hikes, perhaps they don’t have much more work to do.”
While May represented a weak month for services inflation — which Fed officials have zeroed in on as potentially pushing prices higher — there’s a possibility spending could again pick up, Swonk said. She noted that Transportation Security Administration throughput this past Memorial Day exceeded 2019 levels and that vacation-related absences from work are at their highest levels in more than 15 years.
“It was a weak month, but it’s still not enough to leave the Fed completely on the sidelines and feeling like they’re comfortable,” she said. “Because elsewhere in the world, we’ve seen a reacceleration.”
The next critical pieces of information for the Fed are due out at the end of next week, when a trove of labor market data will be released, including the highly anticipated monthly jobs report for June.
