In The Know – June 14, 2024

At Financial Issues, we help you stay informed about the financial issues of the day. We keep you abreast of what is happening in the economies and markets, and help you understand how that impacts your personal financial situation. A lot has happened in the last week.

The big news this week was the Fed’s interest rate decision, which remained unchanged. Earlier in the week, we discussed the Fed’s dual mandate: price stability (keeping inflation at their 2% target) and full employment. Their goal is to create financial conditions favorable for business, keeping unemployment low and inflation under control, which results in a good economy.

Let’s review some of the economic data that came out this week and a little from last week, particularly the ADP numbers. The first week of every month, we receive various labor reports, including one from ADP, a company that tracks payroll for over a million companies, providing a solid indicator of the private markets.

We also receive a government report, or establishment survey, which involves calling people for surveys. This data is adjusted by a panel appointed by the current administration. Over the past year, there has been a noticeable deviation between the establishment reports and ADP reports. Last week’s ADP numbers indicated a slowing demand for workers in 2023.

For context, in 2023, ADP reported an average job growth of 209,000 jobs per month. Recently, the twelve-month average dropped to 194,000 per month, which is 15,000 lower than six months ago. The six-month average for 2024 is 166,000 jobs, a significant drop from the 2023 average of 209,000. The three-month average is 184,000, 25,000 less than the 2023 average.

Unemployment isn’t alarmingly high yet, but it’s trending upward. ADP summarized the situation by stating that job gains and pay growth are slowing. Although the labor market is solid, there are notable pockets of weakness among both producers and consumers. The establishment report echoed this weakening trend despite seemingly positive headlines.

The April jobs opening data showed a slowdown, with job openings totaling just over 8 million, down from nearly 8.5 million the previous month. Job openings, job quits, and the hiring rate all trended downward, peaking between mid-2021 and early 2022.

The establishment report’s optimistic claims about Bidenomics are questionable, leaving those that tout it either gleefully ignorant of what’s really happening or deceptively manipulative. You can come to your own conclusion about that. While the government reports that payrolls grew by 272,000 (nearly 100,000 more than expected), revisions to the prior months’ numbers were down by 15,000 combined. This pattern of revising initial numbers downward is concerning.

Here’s what’s really happening. We are being misled by the initial numbers. Establishment numbers are getting consistently revised down. So, year to date, it says a little over 2 million jobs were initially reported to have been created.

But so many of those jobs have been revised away, and there were 408,000 jobs that were lost and 250,000 people that have just dropped out of the labor force. The unemployment rate rose by one 10th of a point to 4%, matching the highest rate since November 2021. This is still historically very low, but it is on the rise again.

I have little confidence in the government numbers, which report total jobs, not total workers. This discrepancy means more jobs, but not necessarily more people working. Since late 2023, the number of people employed has flatlined. Over the past year, our economy lost 1.2 million full-time jobs and gained 1.5 million part-time jobs.

This trend forces more people to rely on government benefits due to the lack of company-provided benefits in part-time jobs.

Dependence on government programs for retirement increases, leading to more control by the party in power. Illegal immigrants, who often benefit from government programs they haven’t paid for, exacerbate this issue.

Regarding recent economic data, initial jobless claims increased to 242,000, higher than the estimated 225,000 and last week’s 229,000. Inflation, the Fed’s second mandate, showed mixed results. May’s CPI was flat, with a 0.2% core increase, both below expectations. The year-over-year inflation rate is now 3.3% headline and 3.4% core. Wholesale prices (PPI) surprised with a 0.2% drop, contrary to an expected 0.1% increase.

The BLS reported that 60% of the headline drop was due to a 7.1% decrease in gasoline prices, influenced by the Strategic Petroleum Reserve (SPR) releases. Gas prices excluding food and energy rose 0.3% month-over-month.

With reportedly good jobs and inflation readings, the Fed found it hard to justify starting the predicted three rate cuts this year. They left the Fed funds rate unchanged, making modest changes to their statement and economic projections. They acknowledged modest progress toward inflation, with a 2.1% GDP forecast and a 4% unemployment prediction for 2024, rising to 4.2% in 2025. Their PCE forecasts were raised to 2.6% headline and 2.8% core, with varying expectations for rate cuts among Fed members.

Now that you’re informed about recent and upcoming financial issues, we hope you’ll learn how we can help you integrate these insights into your own financial stewardship. Discover more about our biblically responsible investment strategy. We bid you farewell, a good weekend, and a very happy Father’s Day. For the rest of you, we’ll be back right after the break.

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