Private Client Group

July 9th, 2024

Inflation Cools, Sea Transport Activity Up, Job Openings Trend Lower

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In today’s Steady Investor, we focus on current events and factors that we believe are currently shifting the market, such as:

The Fed’s Preferred Inflation Gauge Cools Further – The Federal Reserve pays attention to many different measures of inflation. But their preferred gauge, the Personal Consumption Expenditures (PCE) Price Index, is the one they pay attention to most. May’s inflation data became available in late June, and expectations for disinflation were met. The headline PCE price index rose 2.6% year-over-year in May, a significant step down from April’s 2.8% year-over-year pace. The Core PCE price index, which excludes food and energy, also rose by 2.6%. Importantly, on a month-over-month basis, the headline inflation figure was flat after notching a 0.3% increase in April—the first time inflation was flat in six months.1

The PCE Price Index Has Remained in Fairly Steady Decline

Source: Federal Reserve Bank of St. Louis2

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Markets continue to price in the possibility of two rate cuts in 2024, but Fed officials—including Fed Chairman Jerome Powell—continue to downplay this occurrence. In Fed Chairman Jerome Powell’s words, “We want to be more confident that inflation is moving sustainably down…before we start the process of loosening policy.”

Checking-In on Cargo Ship Disruptions in the Red Sea – Market watchers were jittery as the conflict in the Middle East ratcheted up, as attacks on cargo ships in the Red Sea were interrupting global trade and threatening to trigger a fresh round of inflationary pressures. While it’s still possible the scale of these attacks on ships can escalate and have ripple effects on the outlook for global economic growth, data last week suggests that global sea transport remains very strong. According to Clarksons Research, which is a unit of the world’s largest shipbroker, shipping activity in ton-miles is poised to register its second largest annual increase ever, of 5.1%. To be fair, a meaningful portion of the increase is due to ships rerouting around the horn of Africa, in order to avoid the risks present in the Red Sea. But the data also shows that increasing trade volumes were another major driver of increased ton-miles, which underscores firm economic growth globally.4

Did Your 4th of July BBQ Cost More This Year? Grocery inflation is back down to a pace of roughly 1% a year, a massive improvement from the 13.5% peak reached in August 2022. But those figures account for a wide variety of different foods. When it comes to 4th of July cookouts, some key ingredients have seen higher-than-average inflation over the past year. According to the American Farm Bureau Federation, the average cookout for 10 people will cost $71.22 this year, which is up 5% from last year’s tally and up 30% from 2019 levels. Here were some of the key price jumps cited by the American Farm Bureau Federation5:

The two biggest price jumps above, for ground beef and lemonade, have direct causes. Overall cattle inventory in the U.S. is the smallest it has been in over 70 years, tied to a drought in 2022 that reduced supply. As for lemonade, a citrus greening disease outbreak in California—which is the country’s largest lemon producer—is set to cause a production drop of 16% this year.

Job Openings Trend Lower, Signaling Marginal Softness in the Labor Market – According to the Bureau of Labor Statistics (BLS), the number of job openings in the U.S. economy ticked slightly higher from April to May, but not by much. BLS reported 8.1 million job openings in May, up from 7.9 million available jobs in April. On the other side of the ledger, the number of new hires in May registered at 5.8 million, while the total number of separations (quits, layoffs, discharges) was 5.4 million. The Federal Reserve closely watches this so-called “JOLTS” report, for signs of weakening in the labor market. If job openings (chart below) continue to decline in the coming months, it could open the door a bit wider for the possibility of rate cuts.6

Total Nonfarm Job Openings, U.S. Economy

Source: Federal Reserve Bank of St. Louis7

The Silver Linings in a Volatile Market – It may be hard to find silver linings in this turbulent market, but that doesn’t mean they aren’t there. To help navigate this market, I recommend reading our guide “Using Market Volatility to Your Advantage8.” This guide can help you learn about our insights, based on decades of experience, about how a volatile market can help investors refine their strategies and potentially generate solid returns over time.

You’ll get our ideas on how market volatility can “shake up” complacent investors, why volatility may help prevent overheating and market “bubbles,” and more. If you have $500,000 or more to invest, download this free guide today by clicking the link below.

Disclosure

1 Wall Street Journal. July 2, 2024. https://www.wsj.com/economy/central-banking/powell-says-fed-has-made-a-lot-of-progress-on-inflation-37c2862c?mod=economy_lead_story

2 Fred Economic Data. June 28, 2024. https://fred.stlouisfed.org/series/PCEPI#

3 Zacks Investment Management reserves the right to amend the terms or rescind the Volatility can be a good thing guide offer at any time and for any reason at its discretion.

4 The Economic Times. July 2, 2024. https://economictimes.indiatimes.com/small-biz/trade/exports/insights/global-sea-transport-leaps-most-since-2010-after-red-sea-attacks/articleshow/111420090.cms?from=mdr

5 CNBC. June 27, 2024. https://www.cnbc.com/2024/06/27/why-your-july-4th-bbq-may-be-pricier-this-year.html

6 U.S. Bureau of Labor Statistics. July 2, 2024. https://www.bls.gov/news.release/jolts.nr0.htm

7 Fred Economic Data. July 2, 2024. https://fred.stlouisfed.org/series/JTSJOL#

8 Zacks Investment Management reserves the right to amend the terms or rescind the Volatility can be a good thing guide offer at any time and for any reason at its discretion.
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