Fed Watch – 8/9/2024

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, everyone. My name is Taylor St. Germain with ITR Economics and welcome to the August 9th edition of Fed Watch. I know this is the second time I’m checking in with you this week. And I wanted to start off this recording this Fed Watch episode with highlighting some of the things we talked about earlier in the week.

As many of you might remember, on Monday we checked in after we saw a pretty challenging day in the stock market. Well, the good news is that by the end of the day on Thursday, the S&P had jumped 2.3%, which was the best single day performance since November of 2022.

The NASDAQ jumped 2.9% on Thursday. And the Dow Jones Industrial Average jumping about 1.8%. So as I had mentioned on Monday, the sky wasn’t falling. That was volatility that we were expecting to see, given where we are in the economic cycle.

And we saw a pretty nice rebound throughout the course of the week. It’s Friday as I’m recording this and the stock market has remained steady so far up until this point. Now, I don’t want to downplay the fact that it was a very volatile week.

It was one of the more volatile weeks in the stock market that we’ve seen in quite some time. But again, as our Deputy Chief Economist and our Principal of Economics Jackie Green wrote in her blog on Monday, this type of volatility isn’t all that unusual for this cycle.

So you can see that the stock market rebounded over the course of this last week. Now, I also wanted to spend a bit more time talking about the employment market. Employment was, of course, one of those big ticket items that folks were evaluating on this Monday as that jobs report came out a week ago from today.

Now, again, as we interpret these results, we look at a data set like private sector employment. And when we look at private sector employment in July, we still saw a record number of people employed.

136 .308 million people were employed in July, and that is a record high for any single month’s performance in terms of private sector employment. But we really need to dig into the data. And if we know at ITR that just staring at these monthly values can be misleading at times.

And so what we did was we looked more into the data. And if you look at the data, the 1/12 rate of change. So comparing this July to July one year ago was down to about a positive 1 .4%. That 112 was a positive 1.4%.

So despite the record high number in July, that growth rate is actually the lowest month over month growth rate that we’ve seen in about about three years, a little over three years, 3.25 years. So it is clear that the employment markets are slowing down despite some of the very positive readings.

However, this isn’t the bottom falling out of the employment market. If you looked at the June to July month over month percent change that came in at 0.07%, which is in the majority range of normal.

So yes, the employment markets are slowing down in terms of the pace of growth. But there’s still some very healthy numbers out there when we look at overall private sector employment. So slowdowns are what we would expect in this point of the economic cycle in terms of employment.

But again, it’s not the bottom falling out of the employment markets here in the US. The data is continuing to weaken, at least the data we’re getting here on a weekly basis. And one data point that I did want to call out is US wholesale trade of durable goods.

The May to June percent change was a minus 2.72%. That is below average performance for typical May to June. That’s below average performance for this time of year for wholesale trade. And we saw that month over month growth rate for wholesale trade come in at a positive 1.8% in May, but due to this underperformance in June, we saw that 1/12 growth rate drop back into the negative territory, coming down to a minus 3 .3% when you’re comparing this June,

most recent June over the same June one year ago. So what do you take away from all this information? Well, volatility in the stock market’s not unusual, but the sky is certainly not falling. Private sector employment though still strong is slowing, and that’s what we would expect during this period of being on the backside of the economic business cycle for most major macroeconomic data sets.

And we continue to see some weakness in some of the major macroeconomic benchmarks like wholesale trade. So overall data continues to slow down. We’re on the backside of the cycle. The economy continues to grow in many cases, but growing at a slower pace.

And if you look at some of these more microeconomic data sets like wholesale trade, we are still seeing that there is apparent weakness in certain sectors of the economy. Again, this is all not unusual to us given our forecast for 2024.

So as we think about the Fed, the data continues to build to support the case that the Fed will be able to lower rates later this year and into 2025. The real question for businesses is what are we doing to take advantage of some of this slower activity prepare for some of these lower interest rates so that we can be capitalizing on the economic growth that will be coming our way in 25 and 26.

We’ll continue to keep you updated big Fed meeting next month in September, but overall the data is continuing to perform as we would suggest. And that’s good news moving forward to see some of these lower interest rates coming our way.

I’ll be checking in with you next week, next Friday, but until then, I hope you all have a great weekend and we’ll be talking to you soon. Thanks for joining me on this edition of Fed Watch.