Economic Outlook and Trends 2023

Economic Outlook

• Fed Governor Waller indicated that the labor market is softening but not deteriorating.
• Average hourly earnings reaccelerated to 0.4% (0.3% expected).
• Atlanta Fed President Bostic highlighted 3 signs of deflation: narrowing price increase breadth, core PCE for three months through July at an annualized rate of 1.7%, and slowing shelter price growth.
• The market is now focused on economic growth rather than inflation.

Soft-Landing Narrative

• The overall economy is performing well, according to the Fed’s weekly GDP model and Atlanta Fed’s GDPNow.
• Default rates and weekly bankruptcy filings are decreasing.
• The labor market remains strong with declining unemployment, increasing wage growth, low layoffs, decreasing jobless claims, increasing labor supply, and robust consumer spending.
• Market data is promising with near all-time high profit margins for S&P 500 companies and rebounding staffing firm stock prices.

Recession Narrative

• The labor market shows signs of weakening with lower-than-expected job openings, declining quits rate, and a slight increase in layoffs.
• The employment report shows a lower-than-expected increase in payroll jobs and a decrease in manufacturing jobs.
• The gap between high labor demand and low labor supply has narrowed significantly.
• Fears about consumer spending are growing due to rising consumer loan delinquency rates and a falling personal savings rate.
• Manufacturing sector weakens with falling new orders and production levels.
• The real estate market shows weakness with declining homebuilder confidence, weak home sales, and a drop in home construction bank lending.
• Commercial real estate faces difficulties with increasing default rates and declining multifamily building starts.

Financial Market Signals

• Continued rotation into defensive stocks.
• Financial firms are outperforming the broader market.
• The market is expecting the Fed to cut the Fed funds rate by more than 2% over the next 12 months.
• Treasury yields declined.
• The yield curve dis-inverted, indicating potential for economic slowdown or soft-landing.
• Bets on Fed rate cuts are growing.
• Five-year breakeven inflation rate is below 2%, the lowest since 2020.

Commodity Prices

• Oil prices dropped 8% in the past week, driven by weak global growth and OPEC+ rethinking their output targets, despite heightened geopolitical risks.
• Copper prices are falling due to slower growth and a lagging green transition.

Beveridge Curve and Phillips Curve

• The Beveridge curve portrays the relationship between unemployment and job vacancies.
• The Phillips curve represents the relationship between unemployment and inflation.
• Lower unemployment can lead to increased job openings and inflation.

Immigration Impact

• Immigration to the US has increased significantly since the end of 2020, boosting population growth and labor force participation.
• Recent immigrants have a higher labor force participation rate compared to US-born Americans.
• Immigrants are more likely to have a college degree but less likely to have a high school diploma.

Revising Economic Data

• Revisions to economic data are a normal part of obtaining an accurate picture of the economy, especially when analyzing a complex dataset like the US labor market.
• Employer response rates to the payroll survey improve over time, leading to revisions in the data.
• Revisions reflect a commitment to high-quality statistics.

Explore the latest insights on the U.S. economy, including indicators of labor market strength and inflation trends. This quiz delves into the narratives of economic growth, soft-landing scenarios, and recession concerns as discussed by key Federal Reserve officials. Test your knowledge of current economic conditions and forecasts.