Latest Economic Numbers Are Favorable Toward Looser Fed Policy
The FOMC is likely to be pleased with this recent data set.
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A plethora of economic data Thursday morning seems to be a nice guide toward dovish Fed policy.
At first blush, second-quarter productivity came in much strong than expected at 2.3% vs. 1.7% expected, while unit labor costs were much lower than expected at 0.9% vs. expected an 1.8%. This tells us growth in Q2 2024 was organic and not heavily influenced by inflation. Further, inflation expectations are likely to be reduced on this and other numbers over the past week.
Meanwhile, manufacturing data from the PMI (S&P Global) showed a slightly better read than expected, at 49.6 vs. 49.5. This is the first reading under 50 since January and may be indicating the economy is slowing down from the brisk pace in Q4 2023.
The ISM manufacturing number for July was also released, and showed a 46.8 reading, which was less than expected (48.8). This is the third consecutive month of contraction in this metric, which may signal the economy is slowing. A composite of indicators measures various areas where purchasing managers see strength or weakness. The prices component was higher (better for inflation) while employment was weak, signaling perhaps hiring is slowing down. New orders also contracted in July.
All in all, this data show modest slowing in the manufacturing area, which means the Fed is likely to see potential for the economy to glide to a soft landing if inflation continues to recede as planned.
Likely result? Loosening policy with rate cuts.
