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The Federal Reserve Hiked Short-Term Rates as Expected—the First of the Powell Era

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As expected, the Federal Open Market Committee (FOMC) ended its March 20–21 meeting by hiking short-term rates by 25 basis points. This was the first FOMC meeting chaired by Jay Powell, and the Federal Reserve is likely to increase the federal funds rate at least two (and maybe three) more times in 2018. The economic projections of the participants were consistent with two more rate hikes this year, with the midpoint of the federal funds rate rising from 1.625 percent now to 2.1 percent by year’s end. It is worth noting that the Federal Reserve’s current outlook is more aggressive than it was in December for the next two years. Respondents now see the federal funds rate increasing to 2.9 percent and 3.4 percent by year’s end in 2019 and 2020, respectively, up from 2.7 percent and 3.1 percent three months ago. As always, the actual pace of rate hikes will hinge on incoming data.

The acceleration of rate hikes likely stems from expectations of faster growth, especially after passage of tax reform and continued signs of strength in the global economy. In December, the Federal Reserve forecasted 2.5, 2.1 and 2.0 percent growth for 2018, 2019 and 2020, respectively. That outlook has risen for real GDP growth of 2.7, 2.4 and 2.0 percent in the latest survey. The FOMC also anticipates that the unemployment rate will fall to 3.8 percent in 2018 and 3.6 percent in 2019. The December projections called for 3.9 percent in both years. Read More

Higher Energy Costs Pushed Consumer Prices Higher in January

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The Bureau of Labor Statistics said that consumer prices jumped 0.5 percent in January, its fastest pace in four months. The increase in consumer inflation was led by higher energy costs, which rose by 3.0 percent in January, with gasoline prices up 5.7 percent and fuel oil up 9.5 percent. This is largely consistent with data from the Energy Information Administration, which pegged the average price for regular conventional gasoline at $2.384 per gallon on December 25 but increasing to $2.516 a gallon on January 29. At the same time, food prices rose by 0.2 percent for the second straight month. Since January 2017, food and energy costs have increased 1.7 percent and 5.9 percent, respectively. Read More

Consumer Inflation Slowed in October on Reduced Energy Costs

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The Bureau of Labor Statistics said that consumer prices edged up by 0.1 percent in October, slowing from more robust growth in both August and September. The increases in the prior two months were led by significant growth in energy costs, largely on negative impacts from recent hurricanes, which were up by 2.8 percent and 6.1 percent in those months, respectively. Energy prices began normalizing in October, off by 1.0 percent, with gasoline prices down 2.4 percent. At the same time, food prices were unchanged. Since October 2016, food and energy costs have increased 1.3 percent and 6.4 percent, respectively. Excluding food and energy, core consumer inflation increased by 0.2 percent in October, buoyed by higher costs for medical and transportation services, shelter expenses and used car and trucks.

Overall, the consumer price index (CPI) increased 2.0 percent year-over-year in October, down from 2.2 percent in September. There has been an acceleration in pricing pressures since June’s 1.6 percent year-over-year reading, but the current pace remains well below the 2.8 percent pace seen in February. In addition, core consumer prices, which exclude food and energy costs, have risen 1.8 percent over the past 12 months, inching up slightly from 1.7 percent in the prior release. Read More

Consumer Prices Edged Up 0.1 Percent in July, but Inflationary Pressures Have Cooled Overall

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The Bureau of Labor Statistics said that consumer prices edged up 0.1 percent in July, ticking slightly higher after being unchanged in June. Food prices rose by 0.2 percent for the month, but that was partially offset by a decline in energy costs of 0.1 percent. Since July 2016, food and energy costs have increased 1.1 percent and 3.4 percent, respectively.

Overall, the consumer price index (CPI) increased 1.7 percent year-over-year in July, inching up from 1.6 percent in June. Pricing pressures had accelerated over much of the past year, increasing from 0.9 percent year-over-year in July 2016 to 2.8 percent year-over-year in February. However, inflation has cooled since then. Read More

Manufacturers Have Added 16,000 Jobs in July, Averaging 12,500 Workers per Month Since November

By | Economy, Shopfloor Economics, Shopfloor Main | No Comments

The Bureau of Labor Statistics reported that manufacturers added 16,000 net new workers in July, extending the gain of 12,000 workers June. (June was estimated originally to be a gain of just 1,000 workers, and the May data were also revised from a decline of 2,000 to 0.) The July increase in manufacturing was the fastest since February, and the sector has now increased employment in seven of the past eight months. Over that eight-month span (since November), manufacturers have averaged 12,500 new jobs per month—definite improvement from the loss of 16,000 workers on net in 2016. In July, there were 12,425,000 manufacturing workers. At the same time, average weekly earnings for manufacturing workers rose from $1,086.30 in June to $1,092.03 in July, up 2.8 percent over the past 12 months from $1,062.02.

In another sign that manufacturing jobs are on the rise, Toyota announced today that it will build a $1.6 billion U.S. assembly plant to develop electronic vehicle technologies. The plant opening in 2021 will produce up to 300,000 vehicles per year and employ 4,000 manufacturing workers. Read More

Consumer Prices Unchanged in June, Continue to Decelerate Year-Over-Year

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The Bureau of Labor Statistics reported that consumer prices were flat in June. Energy prices decreased 1.6 percent, falling for the fourth time in the past five months, with gasoline prices off 2.8 percent in June. This was largely consistent with data from the Energy Information Administration, which noted that the weekly average price for regular conventional gasoline was $2.308 on May 29 but fell to $2.201 on June 26. In contrast, food prices were flat for the month, with higher costs for meats, poultry, fish and eggs offset by lower prices in other categories. Over the past 12 months, food and energy costs have increased 0.9 percent and 2.3 percent, respectively.

Overall, the consumer price index increased 1.6 percent year-over-year in June, its lowest rate since October. This suggests that the acceleration in pricing pressures that peaked at a 2.8 percent year-over-year rate in February has slowed since then. With that said, year-over-year consumer inflation was 1.0 percent in June 2016, suggesting that overall prices have still trended slightly higher over the past year despite some deceleration in that pace over the past few months.

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For the First Time in 2016, the Federal Reserve Raised Short-Term Rates; Three Increases Seen in 2017

By | Economy, Shopfloor Economics, Shopfloor Main | No Comments

The Federal Open Market Committee (FOMC) opted to raise short-term rates for the first time so far in 2016 at the conclusion of its December 13–14 meeting. The target of the federal funds rate was increased by 25 basis points, with the range now between 0.50 to 0.75 percent. This move was widely expected, with financial markets having already pricing in this move. Moving into 2017, FOMC participants appear to be more hawkish than they were three months ago, with economic projections appearing to forecast three rate hikes next year. That is up from a median prediction of two rate hikes at their September meeting. Beyond next year, Federal Reserve participants also see three increases in both 2018 and 2019.

To be fair, the Federal Reserve is playing catch-up a little here, with the bond market already sending yields significantly higher since the election. Indeed, yields on 10-year Treasury bonds have already risen more than 60 basis points since early November. Read More

Producer Prices Were Unchanged in October, but Were Up 0.4 Percent for Final Demand Goods

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Producer prices were unchanged in October, slowing after a rebound in the September data. The flat growth in the headline number stemmed from reduced producer prices for final demand services, down 0.3 percent. In contrast, producer prices for final demand goods increased 0.4 percent in October, extending the 0.7 percent gain seen in September. Higher inflation for goods came largely from a jump in energy costs, up 2.5 percent; whereas, food prices were off by 0.8 percent. Food costs have been on a downward trend over the longer-term, down 3.5 percent over the past 12 months. On the other hand, energy prices have edged up 0.2 percent year-over-year. Read More

Producer Prices Ticked Higher in September, but with Inflation Largely Still in Check for Now

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Producer prices ticked higher in September, bouncing back from softness in the prior two months. The Bureau of Labor Statistics said that producer prices for final demand goods and services rose 0.3 percent in September, the first increase reading in three months. For final demand goods, food and energy prices were both higher, up 0.5 percent and 2.5 percent, respectively, but each were coming back from notable declines in both July and August. The longer-term trend has been negative for both. Food costs have decreased 3.4 percent over the past 12 months, with energy prices off by 2.4 percent year-over-year. Read More

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