Tag: Economy

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In August 2024 – U.S. consumer prices increased by 0.2% with core inflation exceeding expectations

U.S. CPI statistics

As anticipated in the U.S., prices rose in August 2024, while the annual inflation rate fell to its lowest point since February 2021, according to a Labor Department report on Wednesday 11th September 2024.

This development likely now paves the way for a Federal Reserve interest rate reduction next week but maybe by only 0.25% and not the 0.50% some pundits have predicted.

The consumer price index, which measures a wide array of goods and services costs throughout the U.S. economy, rose by 0.2% for the month, matching the consensus, as reported by the Bureau of Labor Statistics.

This increase brought the year-on-year inflation rate to 2.5%, a decrease of 0.4 percentage points from July 2024 and slightly below the 2.6% prediction.

Nevertheless, the core CPI, which omits the more fluctuating food and energy prices, saw a 0.3% rise for the month, just above the 0.2% projection. The annual core inflation rate stood at 3.2%, consistent with expectations.

Data: U.S. Bureau of Labor Statistics
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UK economy flatlines for second month in a row

UK economic health

The UK’s economy did not experience growth in July 2024, continuing the stagnation from June 2024, as indicated by official data

Analysts had anticipated a modest growth of 0.2% for July. However, the Gross Domestic Product (GDP) fell short of the expectations set by economists surveyed by Reuters, who had predicted a 0.2% increase. Additionally, the country experienced no GDP growth in June 2024.

In July 2024, Britain’s predominant services sector experienced a slight increase of 0.1%, while production and construction outputs declined by 0.8% and 0.4%, respectively.

The UK’s economic growth rose by 0.5% in the three months leading up to July 2024, which was marginally below the expectations of economists and the 0.6% growth seen in the second quarter ending in June.

The services sector received a boost from a summer filled with sports events, including the Euros and the Olympics, despite the downturn in production and construction outputs.

The absence of growth for another month poses a significant challenge for the new Labour government, which has prioritised economic stimulation.

Despite no growth in July 2024, the Office for National Statistics (ONS) noted that the services sector showed strength over the last three months as a whole. Growth was primarily driven by computer programmers and the health sector, which bounced back from June’s strike action.

However, there was a decline in output from the advertising, architecture, and engineering sectors, according to the ONS. Car and machinery firms experienced a particularly challenging month.

While the ONS tracks gross domestic product (GDP) monthly, greater emphasis is placed on the three-month trend. Monthly figures, being preliminary estimates, are often subject to minor revisions as more data becomes available.

UK economy flatlines in July 2024

UK economy flatlines in July 2024 (Graph and Data ONS)
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Does the stock market reflect the state of the U.S. economy?

Stock market health monitor

The stock market is often seen as a barometer of economic health, but its relationship with the broader U.S. economy is more nuanced than it might appear.

Although there are links between the two, they do not always correlate. The intricacies of this relationship and its implications for investors and the general public are multifaceted.

The stock market – A snapshot of investor sentiment

The stock market is largely a reflection of investor sentiment and their expectations for future economic performance. When investors feel optimistic, stock prices generally increase. On the other hand, when they are pessimistic, stock prices are likely to decrease. Because the market is driven by sentiment, it can react to factors that don’t immediately affect the real economy, like geopolitical events, interest rate changes, or corporate earnings announcements.

Economic indicators: The real economy

The well-being of the U.S. economy is often assessed using various indicators such as Gross Domestic Product (GDP) growth, unemployment rates, consumer spending, and inflation. These metrics offer a broader perspective on the economic climate. For example, an expanding GDP coupled with low unemployment usually indicates a robust economy, despite any fluctuations in the stock market.

Divergence between the stock market and the economy

Occasionally, the stock market and the economy may move in different directions. For instance, during the COVID-19 pandemic, the stock market swiftly recovered from an initial downturn due to extraordinary fiscal and monetary stimulus measures. In contrast, the wider economy’s recovery was more protracted, marked by persistent high unemployment and substantial disruptions across numerous industries.

Likewise, the stock market might fall even amidst positive economic indicators. This occurs when investors foresee impending difficulties, such as possible increases in interest rates or geopolitical conflicts, that could affect corporate earnings.

Short-term vs. long-term perspectives

The stock market frequently responds to short-term factors and investor behaviours, such as speculation and market sentiment, leading to volatility that may not align with the underlying economic fundamentals. Conversely, economic indicators generally offer a more long-term perspective on the economy’s health.

The broader impact of the stock market

Although the stock market’s performance can influence the economy via wealth effects and corporate investments, it is not the only indicator of economic vitality. The performance of the stock market is significant to many U.S. citizens, especially those with investments through retirement plans.

However, the real economy, as measured by employment, production, and consumption, often has a more direct impact on people’s daily lives.

Conclusion

In conclusion, although the stock market is linked to the U.S. economy, they do not always move in tandem. The stock market reflects investor sentiment and anticipations for the future, yet it may not fully represent the present economic conditions.

Hence, for a thorough assessment of economic health, it is crucial to evaluate various economic indicators in addition to the performance of the stock market.

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Dow Jones hits new record high

The Dow Jones Industrial Average (DJIA) reached a new record high on Monday 26th August 2024, closing at 41240. 

Investors have responded positively to the Federal Reserve’s recent indications that interest rate cuts are highly probable to commence in September 2024.

Market dynamics and sentiment

The rise of the DJIA was propelled by advances in sectors like materials, utilities, and energy. Conversely, the broader market exhibited mixed outcomes. The S&P 500 declined by 0.3%, and the Nasdaq Composite dropped by 0.8%, contrasting with the Dow’s notable performance. This disparity is largely due to the lagging of technology stocks, especially with significant drops in firms such as Nvidia and Tesla.

Federal Reserve

Federal Reserve Chair Jerome Powell’s recent address at the Jackson Hole Economic Symposium was pivotal in bolstering investor confidence. Powell’s remarks indicated that the Fed is ready to cut interest rates, which many investors believe will foster economic growth and stabilise the markets. The expectation of rate cuts has played a significant role in the recent market rally, with predictions of potential reductions up to 1% by the end of 2024.

Dow Jones one day chart at record high

Dow Jones 1 day chart

Despite varied performances across sectors, the Dow reaching a new high signals a wider optimism in the market. As the year unfolds, the dynamics among Federal Reserve policies, corporate earnings, and economic indicators will continue to influence market directions.

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U.S. jobs data revision creates economic concern and political argument

U.S> jobs data revision

Job growth in the US last year was weaker than previously believed, according to a statement from the Labor Department on Wednesday 21st August 2024.

This revelation has intensified the ongoing debate regarding the health of the U.S. economy. The department’s updated figures indicate that there were approximately 818,000 fewer jobs added over the 12 months leading up to March than initially estimated.

This preliminary revision suggests a 30% decrease in the total number of jobs created during that period, marking the most significant adjustment since 2009.

The revised data points to an average monthly job increase of about 174,000, a reduction from the previously estimated 240,000.

Downward revisions affected most sectors, including information, media, technology, retail, manufacturing, and the broad category of professional and business services.

Analysis by Oxford Economics noted that this indicates the job growth for the period relied more heavily on government and education/healthcare sectors than previously understood.

Despite the revisions, hiring remained robust, albeit not at levels sufficient to match the growth of the working-age population.

The U.S. Labor Department issues monthly job creation estimates based on employer surveys and regularly updates these figures as more data becomes available, with an annual reset at the beginning of each year.

The report from Wednesday offered a glimpse into this process, incorporating data from county-level unemployment insurance tax records. This year’s revision is notably larger than those of previous years.

The Biden administration has highlighted strong job growth as evidence that its policies have positioned the U.S. as the world’s leading economy post-pandemic.

However, Republicans have used the latest figures to contend that the Democrats have misled the public about the economic situation. The Republican Party took to social media to announce: “BREAKING: 818,000 jobs that the Biden-Harris administration claimed to have ‘created’ do not actually exist.”

Over the past year, the U.S. has consistently reported robust job growth, defying both economists’ expectations and public sentiment. These gains have been particularly surprising given the highest borrowing costs in a generation, which typically hinder economic growth.

The recent revisions have lent weight to the argument that the labour market is less stable than previously thought, as highlighted by the Republican response.

Analysts believe these new figures will reinforce the case for the U.S. Federal Reserve to lower interest rates at its upcoming September 2024 meeting, a move that is widely anticipated to prevent further weakening of the job market.

These revisions have not caused widespread concern

Despite earlier economic anxieties this month, financial markets have largely absorbed the latest data without significant turmoil.

But that doesn’t mean there will be zero fallout – turmoil may follow. The data believed to be correct is incorrect – so, can we believe the data? Are there cracks appearing in the U.S labour market?

This data helped the U.S. economy – but it wasn’t right?

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People leave New Zealand in record numbers seeking better opportunities

Leaving New Zealand

Record numbers of people are leaving New Zealand as unemployment increases, interest rates stay elevated, and economic growth remains weak, according to government statistics.

Statistics New Zealand’s data released on Tuesday 13th August 2024 indicates that 131,200 individuals left New Zealand in the year ending June 2024, tentatively the highest annual figure on record. Approximately one-third of these individuals were bound for Australia.

Although net migration is still high, economists anticipate a decline as fewer foreign nationals show interest in moving to New Zealand due to the weaker economy.

The statistics reveal that 80,174 of those who left were citizens, nearly twice the number that left before the Covid-19 pandemic.

During the pandemic, New Zealanders abroad returned in large numbers, spurred by the government’s response to the crisis.

However, for some, the appeal of the 5.3 million-strong country has waned. Economists note that New Zealanders, vexed by living costs, high interest rates, and limited job prospects, are considering relocation to Australia, the UK, and other countries.

New Zealand’s economy is floundering following the central bank’s 521 basis point increase in cash rates, the most substantial hike since the official cash rate’s inception in 1999.

The economy grew by only 0.2% in the first quarter, unemployment climbed to 4.7% in the second quarter, and inflation continues to be high at 3.3%.

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UK retailers reported a 0.5% rebound in July 2024

Retail UK

UK retail sales up

The rise came after a significant drop in sales volumes, which track the amount purchased, in June due to unfavorable weather affecting demand.

Last month, department stores and retailers of sports equipment saw an uptick in the volume of goods sold thanks to the Euro football tournament.

However, the Office for National Statistics (ONS), which provided the data, noted that it was a challenging month for clothing and furniture retailers, with fuel sales declining even as prices at the pump decreased.

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Nikkei rises 3% to lead gains in Asia

Japan shares

Japanese stocks led gains across Asia on Friday 16th August 2024, poised for their best week in four years, with the Nikkei 225 climbing over 3% following a Wall Street rally.

The surge came as new economic data alleviated concerns of a U.S. recession.

In the U.S., retail sales saw a 1% increase in July, significantly exceeding the Dow Jones estimate of a 0.3% rise. Additionally, weekly jobless claims experienced a decline.

The rise in the Nikkei came after the biggest fall in history just days ago where it hit historic lows last seen in 1987 making it a remarkably fast recovery.

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U.S. consumer spending improved in July 2024 as retail sales increased by 1% – better than forecast

U.S. retail

In July 2024, U.S. consumer spending exceeded expectations, and inflation pressures continued to ease, as reported by the U.S. Department of Commerce on Thursday 15th August 2024.

Retail sales in the U.S. rose by 1% for the month, with advanced figures adjusted for seasonality but not for inflation. This surpassed the 0.3% increase anticipated. The initially flat reported sales for June 2024 were revised to a 0.2% decrease.

Removing auto-related items, sales saw a 0.4% rise, which was substantially more favourable than the predicted 0.1%.

The number of weekly jobless claims fell to 227,000, a drop of 7,000 from the preceding week, and was below the forecasted 235,000.

Markets have responded positively to all this good news, and together with other favourable developments, it appears increasingly likely that the Federal Reserve will have no reason other than to cut rates in September 2024.

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UK economy grows 0.6% in second quarter 2024

UK GDP growth

The U.K. economy grew by 0.6% in the second quarter of 2024, the Office for National Statistics said Thursday 15th August 2024, in line with expectations.

The data release follows an expansion of 0.7% in the first quarter of 2024.

Economic growth was flat in June, in line with forecasts.

The UK economy has shown modest yet consistent growth each month this year, marking an exit from a mild ‘technical’ recession. Additionally, GDP remained unchanged in April, influenced by wet weather that impacted retail sales and construction activity.

Growth was led by the services sector, in particular the IT industry, legal services and scientific research.

ONS data for UK economic growth
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U.S. inflation slows in July 2024

U.S. inflation

U.S. consumer prices (CPI) increased at the slowest rate in over three years last month, further supporting the argument for the Fed to begin reducing interest rates.

According to the U.S. Labor Department, prices climbed 2.9% in the 12 months leading up to July 2024, marking the smallest yearly rise since March 2021 and a decrease from 3% in June 2024.

The monthly inflation report was under intense scrutiny following indications of weaker-than-anticipated job growth in July, which earlier this month led to upheaval in the stock market and concerns about a recession.

Analysts have suggested that these figures should persuade the Federal Reserve that the elevated borrowing costs are effectively bringing inflation back to its target levels, despite the recent increases in housing and food prices.

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UK inflation rate climbs to 2.2%

UK inflation

The UK’s inflation rate has risen for the first time this year, official ONS figures show.

This indicates that overall prices increased by 2.2% in the year leading up to July, a rise from 2% in June, surpassing the Bank of England’s target.

The anticipated increase is primarily attributed to the less significant drop in gas and electricity prices compared to the previous year.

The Bank of England reportedly anticipates a further increase in inflation this year before it declines again.

The core inflation rate, which is the Consumer Price Index (CPI) excluding food, energy, alcohol, and tobacco prices, was reported at 3.3% in July, a slight decrease from 3.5% in June, according to the statistics office.

Additionally, service inflation, which the Bank of England (BoE) monitors closely, decreased to 5.2% in July from 5.7% the previous month, yet still remains elevated.

These inflation statistics follow the release of data on Tuesday 13th July 2024, which revealed that the average wage growth excluding bonuses was 5.4% from April to June year-on-year, the lowest in two years.

Concurrently, the unemployment rate dropped to 4.2% during this period, down from 4.4% between March and May 2024.

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Do falling commodity prices indicate there is trouble brewing with the U.S. economy?

Commodities

Falling commodity prices can be a signal of economic trouble ahead

When commodity prices drop, it often reflects a decrease in demand for raw materials, which can be a sign of slowing economic activity. For instance, the recent decline in copper prices is seen as a potential indicator of economic slowdown.

Sugar, cotton, soybean, oil and iron ore are some examples where demand has fallen during this year.

However, it’s important to consider other factors as well. The global economic slowdown has reduced demand for energy, minerals, and agricultural products. While this trend is evident in many countries, the U.S. economy has shown some resilience.

So, while falling commodity prices can be a warning sign, they are just one piece of the puzzle. It’s essential to look at a broader range of economic indicators to get a complete picture.

Commodity price charts as of: 13th August 2024

Copper one year chart

Iron ore one year chart

Cotton price one year chart

Sugar one year price chart

Soybeans one year price chart

U.S. oil one year price chart

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U.S. wholesale inflation rose 0.1% in July 2024 by less than expected

U.S. economic inflation PPI data

In July 2024, a principal indicator of U.S. wholesale inflation climbed less than anticipated, potentially paving the way for the Federal Reserve to begin reducing interest rates.

The Producer Price Index (PPI), which is a gauge of wholesale inflation, saw a modest increase of 0.1% for the month of July, falling short of the 0.2% prediction. Excluding food and energy, the PPI remained unchanged.

Year-on-year, the headline U.S. PPI ascended by 2.2%, marking a significant decline from June’s 2.7% figure.

Should the Federal Reserve not proceed now with a rate cut VERY soon, it is probable that a ‘frenzy’ of ‘catch-up’ rate cuts will ensue to counteract a struggling economy.

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Slower and smaller-than-expected rate cuts. A slowing U.S. economy and a potential AI bubble – does this all add up to a coming bear market?

Witches' stocks cauldron

The stock markets mix of toil and trouble is in the cauldron ready for a bear market in 2025, if not before.

Why?

  • Fed to resist reducing rates to the market’s desired 3.50%.
  • Profits unlikely from now on to fulfill expectations, because the U.S. economy is slowing.
  • AI sector is in or close to ‘bubble territory’.
  • Debt.
  • Geopolitical concerns.

These concerns are now all combining, and it will likely add-up to a bear market of around 25% in 2025 (this is my best guess).

Remember – make your own decisions and always, always do your own careful research. Seek professional financial advice if in doubt.

RESEARCH! RESEARCH! RESEARCH!

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S&P 500 enjoys its best day since 2022 after market rout just 4 days before

Stock chart S&P 500

Stocks rose on Thursday 8th August 2024 as the latest U.S. employment data bolstered investor confidence in the economy, following a significant market downturn earlier in the week.

The S&P 500 increased by 2.3%, closing at 5319.31, marking its best day since November 2022. The Dow Jones Industrial Average jumped by 683.04 points to 39446.49.

S&P 500 5-day chart as of 8th August 2024

S&P 500 5-day chart as of 8th August 2024

The Nasdaq Composite climbed to 16660.02. And all these gains just 4 days after the market rout on Monday 5th August 2024.

The most recent weekly unemployment claims were lower than expected, easing some of the recent worries about the U.S. labour market.

The initial claims for unemployment benefits last week were 233,000, a decrease of 17,000 from the previous week.

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Is the Fed fighting its own shadow?

Shadow boxing

Has the Fed over-cooked it this time by waiting too long to reduce interest rates?

U.S. stock markets threw a wobbly after the latest employment data and after the Fed delayed its first rate cut… again. September 2024 now looks likely for that first cut – but by how much: 0.25% or as high as 0.50%?

The latest batch of bad news for the U.S. economy has actually became bad news for stocks this time. For too long the ‘bad news’ has been taken as ‘good news’, especially regarding the likelihood of a Fed interest rate cut – and for the markets in general.

The Federal Reserve (Fed) is grappling with several challenges, including inflation, interest rates, and the broader U.S. and global economies.

Inflation

The Fed has been trying to control high inflation rates, which have been a significant concern. To combat inflation, the Fed has raised interest rates multiple times. Higher interest rates can help reduce inflation by slowing down borrowing and spending, but they can also slow economic growth.

Interest rates

By increasing interest rates, the Fed aims to make borrowing more expensive, which can help cool down an overheated economy. However, this can also lead to higher costs for consumers and businesses, potentially leading to reduced investment and spending.

Economic growth

The Fed’s policies are a balancing act. While they aim to control inflation, they also need to ensure that the economy doesn’t slow down too much. This balancing act can be challenging, especially when external factors like global economic conditions and geopolitical events come into play.

In essence, the Fed’s efforts to manage these issues can sometimes feel like ‘fighting its own shadow,’ as the consequences of their actions can create new challenges.

The timing of interest rate adjustments by the Federal Reserve is a topic of much debate among economists and policymakers.

Inflation control

The Fed’s primary goal in raising interest rates has been to control inflation. If inflation remains high, the Fed might be cautious about reducing rates too quickly to avoid a resurgence of inflation.

Economic indicators

The Fed closely monitors various economic indicators, such as employment rates, consumer spending, and GDP growth. If these indicators suggest that the economy is still strong, the Fed might delay reducing rates to ensure that inflation is fully under control.

Market reactions

Rapid changes in interest rates can cause volatility in financial markets. The Fed often aims for a gradual approach to avoid sudden shocks to the economy.

Global factors

The Fed also considers global economic conditions. For example, if other major economies are experiencing slow growth or financial instability, the Fed might be more cautious in adjusting rates.

Ultimately, the decision to reduce interest rates involves balancing the need to support economic growth with the risk of reigniting inflation. It’s a complex decision with significant implications for the U.S. and global economies.

Looks like the Fed overcooked it this time – but by how much?

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Euro zone inflation rises to 2.6% in July 2024 – above expectations

Euro Zone data

In July 2024, inflation in the euro zone unexpectedly increased to 2.6%, as reported by the European Union’s statistics agency on Wednesday 31st July 2024.

Core EU inflation, which omits the more volatile prices of energy, food, alcohol, and tobacco, reached 2.9% in July, surpassing expectations.

Services inflation, a closely monitored indicator, registered at 4% for July, marking a slight decrease from the 4.1% figure in June.

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U.S. rate cut looking more likely as Fed key inflation measure rose 2.5% in June 2024 over the year

U.S. Inflation

The personal consumption expenditures price index (PCE) increased 0.1% in June 2024 and was up 2.5% from a year ago, with the annual rate showing a slight decline from the prior month

Core inflation, which excludes food and energy, showed a monthly increase of 0.2% and 2.6% on the year, both also in line with expectations.

Personal income rose just 0.2%, below the 0.4% estimate. Spending increased 0.3%, meeting the forecast, while the personal savings rate decreased to 3.4%.

This PCE reading may encourage the Fed to cut rates now.

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U.S. economy grew by 2.8% in Q2 – better than expected

U.S. economy

In the second quarter of 2024, the U.S. economy expanded at a strong annual rate of 2.8%, exceeding economists’ forecasts.

This surge was fueled by positive consumer spending, substantial government expenditures, and increased inventories.

The personal consumption expenditures price index saw a 2.6% rise in the same timeframe, a decrease from the prior quarter’s 3.4% climb as core prices, which exclude food and energy, increased by 2.9%.

The data suggests a continued deceleration in the personal savings rate, standing at 3.5% for the quarter, down from 3.8% in the first quarter.

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China’s exports beat forecast – but imports drop

Bust container port

In June 2024, China’s imports fell by 2.3% year-on-year in U.S. dollar terms, missing the expected 2.8% growth forecast by analysts.

However, exports rose by 8.6%, surpassing the anticipated 8% growth. This resulted in a 2% increase in year-to-date imports and a 3.6% rise in exports for the first half of the year compared to the same period last year.

Additionally, China’s trade with the Association of Southeast Asian Nations (ASEAN) surged by 7.1% in the first half of the year, solidifying ASEAN as China’s largest regional trading partner, followed by the European Union.

Trade with Brazil grew rapidly in the first half of the year, with Chinese exports to the country surging by 24.4%.

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Federal Reserve chair Powell says keeping rates high for too long could jeopardize growth

Banker giving a speech

Jerome Powell on Tuesday 9th July 2024 reportedly expressed concern that holding interest rates too high for too long could jeopardize economic growth. This comment came ahead of the consumer price index reading due this week.

Preparing for a two-day session on Capitol Hill, the central bank chief stated that the economy and labour market continue to be robust, even with some recent slowdown. Powell noted a slight reduction in inflation, affirming that policymakers are determined to reduce it to their target of 2%.

“At the same time, in light of the progress made both in lowering inflation and in cooling the labour market over the past two years, elevated inflation is not the only risk we face,” he reportedly said. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

Sounds to me like he is paving the way for the first interest rate reduction.

The comment ties-in with the upcoming one-year period since the Federal Open Market Committee (FOMC) last increased the benchmark interest rates.

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S&P 500 and Nasdaq hit record highs again as job data raises chance of a Fed interest rate cut

U.S. market record highs

Markets respond positively to job data as the S&P 500 and Nasdaq break record highs, again!

S&P 500 record high

S&P 500 record high Friday 5th July 2024

Nasdaq Composite record high

Nasdaq Composite record high

Nasdaq 100 record high

Nasdaq 100 record high

U.S. non-farm payrolls increase

The U.S. economy added slightly more jobs than expected in June 2024 though the unemployment rate increased, the U.S. Labor Department reported Friday.

Non-farm payrolls increased by 206,000 for the month, better than the 200,000 Dow Jones forecast though less than the downwardly revised gain of 218,000 in May, which was cut sharply from the initial estimate of 272,000.

The unemployment rate unexpectedly rose to 4.1%, matching the peak since October 2021, presenting a conundrum for Federal Reserve officials as they consider their next steps in monetary policy. Projections had indicated that the unemployment rate would remain stable at 4%.