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6 key economic signals for markets to follow

  • The Fed’s September policy meeting is underway, with another rate decision expected on Wednesday.
  • There are six key economic indicators that allow markets to gauge the health of the U.S. economy.
  • The United States is likely headed for a mild recession, an investment executive says.

As the Federal Reserve begins its two-day policy meeting, many economic indicators could indicate what the central bank might do next.

Central bankers gathered Tuesday for the September Federal Open Markets Committee meeting, and officials are expected to announce their next interest rate decision Wednesday afternoon. Markets are currently pricing in a 99% chance that the Fed will choose to keep interest rates unchanged, according to the CME FedWatch tool.

The Fed has nevertheless warned that it could keep interest rates high in the long term, which could be bad news for stocks and the economy. High rates help the Fed achieve its goal of reducing inflation, but increase the risk of overtightening the economy and a recession, economists warn.

“We don’t see much in the latest numbers that would change our view that the Fed will be unwilling to declare ‘mission accomplished’ in its fight against inflation until the labor market calms down and “We expect wage pressures to be in the 3.5 percent or lower range for an extended period of time,” Brent Schutte, chief investment officer of Northwestern Mutual Wealth Management, said in a note Monday.

“Unfortunately, leaving rates at the current restrictive level is likely to lead to a shallow and short-lived recession, in our view,” he later added, while noting that the Fed had ample room to reverse its policy. monetary policy in the event of a recession. .

Schutte highlighted six economic indicators that investors should watch, some of which signal storm clouds looming on the horizon for the U.S. economy.

1. Disinflation slows

Inflation has eased significantly from last summer’s highs, but prices remain well above the Fed’s 2% target. Prices reaccelerated by 3.7% year-on-year in August, up from last month’s 3.2% price growth.

The 16 percent lower average CPI, a Cleveland Fed inflation gauge that excludes components with extreme price swings, also shows a slowing pace of disinflation. Prices increased by 0.29% in August, compared to 0.22% in July.

“While one month does not constitute a trend, the latest inflation figures suggest that it may be difficult to make further progress in reducing price pressures until wages begin to fall, which which is unlikely without a corresponding recession,” Schutte warned.

2. Small business optimism is waning

Small business optimism fell over the past month to 91.3, down 0.6 points from July’s figure. Additionally, August marked the 20th consecutive month that small business optimism fell below the 49-year average of 98, reflecting growing concern among small businesses about inflation.

3. Retail sales rise while wages fall

Retail sales jumped 2.5% over the past year, according to the latest Census Bureau data. But Americans’ real wages actually fell 0.5% over the past month, according to the Bureau of Labor Statistics, which could spell trouble for the American consumer.

Some economists have already sounded the alarm about Americans’ dwindling savings and seemingly unsustainable spending habits. The San Francisco Fed projects that Americans’ excess savings from the pandemic will run out by the end of this quarter, removing a critical buffer to the economy.

4. Manufacturing production is low

Manufacturing output, the largest component of industrial production, rose just 0.1% in August, down from last month’s 0.4% rise. In annual terms, the manufacturing sector is down 0.6%, while industrial production is up just 0.25%.

5. Consumer confidence is declining

Consumer confidence eased to 67.7 in September, according to the latest University of Michigan survey. This figure represents a drop of around 3% from 69.5 recorded in August, although it is up 15.5% from September last year, when consumer confidence was rising at 58.6.

At the same time, consumer inflation expectations have also eased slightly, although they remain above the Fed’s long-term inflation target of 2%, as Americans expect inflation to accelerate. inflation of 3.1% over the next year and 2.7% in the long term.

6. Unemployment is increasing

Unemployment claims reached 220,000 last week, 3,000 more than the previous week. This could be a sign of a weakening labor market, although employment conditions remain generally strong, with the four-week rolling average of new jobless claims standing at 224,500, the lowest since February.


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