Private Client Group

June 17th, 2024

Hiring And Wages Rise, Fed Sees Just One Rate Cut In 2024, Consumers Feel Better About Economy

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In this week’s Steady Investor, we’re spotlighting key market updates that every investor should keep an eye on, such as:

• Hiring and wages are up
• Fed projects just one cut this year
• Americans have a positive outlook on the economy

Jobs Up, Inflation Down – The U.S. Labor Department reported May jobs data last week and consumer price index (CPI) data this week. Both reports delivered positive news. In the U.S. labor market, U.S. jobs growth widely exceeded expectations in May, with 272,000 new jobs reported. Economists were expecting less than 200,000 jobs. Average hourly earnings also rose 4.1% year-over-year, which as we’ll detail below, was nicely above the annual CPI inflation rate of 3.3%. This gap between earnings growth and the inflation rate signals that ‘real wages’ are on the rise for U.S. consumers, which is arguably good for spending and good for the economy. The unemployment rate ticked up to 4% in May, higher than April’s 3.9%, as more unemployed workers came off the sidelines.1 Even still, the unemployment rate has been at or below 4% for 30 months now, which the U.S. economy hasn’t experienced since the 1960s. On the inflation front, the Labor Department reported that CPI rose 3.3% year-over-year, an improvement from April’s 3.4% print. U.S. households paid less for transportation, some retail goods, gas, and also saw some relief from rising medical care prices. On a month-over-month basis, prices rose 0.2% in May, which was the lowest monthly reading since July 2023. This CPI report followed a positive report from the Fed’s preferred inflation gauge, the PCE price index, and it arguably takes the pressure off the Fed to keep monetary policy overly restrictive. In the news, the futures markets priced-in a 70% chance of two rate cuts in 2024, up from 52% before the CPI report was released.2

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Fed Holds Rates Steady and Projects One Rate Cut in 2024 – In the second half of 2023, Fed officials were increasingly encouraged by inflation’s progress, which had market participants forecasting a few rate cuts in 2024. But then economic growth accelerated in the second half of last year, and Q1 2024 inflation readings came in hotter-than-expected. Prior to March’s standout higher-than-expected CPI print, a narrow majority of Fed officials were projecting three cuts in 2024. But March and April’s CPI data altered that calculus and the prospect of rate cuts diminished further and further. At the June meeting, which just took place this week, the Fed held rates steady at a range between 5.25% and 5.5%. Eleven of nineteen policymakers projected no more than one rate cut in 2024, with four officials signaling no cuts were likely in the year. The remaining eight Fed officials kept the possibility of two rate cuts open for 2024. The Fed will meet four more times in 2024, in July, September, November, and December. Whether or not a rate cut happens will all depend on CPI and the PCE price index readings between now and those meetings.4

American Households Starting to Feel Better About Their Finances and the Economy – For the better part of the past year, many Americans have been feeling pretty lousy about their finances and the economy. In fact, according to a Guardian/Harris poll, 56% of respondents thought the U.S. economy was in a recession, which is the opposite of the economy’s trajectory over the past two quarters. But recent data from the New York Fed suggests sentiment is turning around, even if just slightly. According to the NY Fed’s May Survey of Consumer Expectations, 78.1% of respondents expected to be better off financially in the next year, the highest reading since June 2021. Respondents put a 40.5% chance that the stock market would also keep going up in the next twelve months, which is the most optimistic they’ve been since May 2021. Inflation expectations also fell. One potential reason behind the rosier outlook for the U.S. economy is that household net worth reached a new record of $160.8 trillion in Q1 2024, up 2.9% from Q4 of last year.5

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Disclosure

1 Wall Street Journal. June 7, 2024. https://www.wsj.com/economy/jobs-report-may-unemployment-economy-2aee1a4f?mod=djemRTE_h

2 Wall Street Journal. June 12, 2024. https://www.wsj.com/economy/central-banking/cpi-report-fed-meeting-interest-rate-ef93c8b0?mod=economy_lead_story

3 Zacks Investment Management reserves the right to amend the terms or rescind the free 4 Strategies for Spending Money in Retirement offer at any time and for any reason at its discretion.

4 Wall Street Journal. June 12, 2024. https://www.wsj.com/economy/central-banking/cpi-report-fed-meeting-interest-rate-ef93c8b0?mod=hp_lead_pos1

5 CNN. June 10, 2024. https://www.cnn.com/2024/06/10/economy/may-survey-consumer-expectations/index.html

6 Zacks Investment Management reserves the right to amend the terms or rescind the free 4 Strategies for Spending Money in Retirement offer at any time and for any reason at its discretion.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns, which will be reduced by fees and expenses.

The ICE U.S. Dollar Index measures the value of the U.S. Dollar against a basket of currencies of the top six trading partners of the United States, as measured in 1973: the Euro zone, Japan, the United Kingdom, Canada, Sweden, and Switzerland. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
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