The job market continues to be a source of inflation
The San Francisco Fed research suggests the job market continues to be a source of inflation, which Powell estimates was 2.3% in October by the Fed's targeted measure, and 2.8% by a measure stripping out food and energy that the Fed uses to gauge underlying inflationary pressures
San Francisco Fed economists say US labor market still boosting inflation
A tight U.S. labor market is still adding to inflationary pressures, though less so than it did in 2022 and 2023, according to research published on Monday by the San Francisco Federal Reserve.
"Declines in excess demand pushed inflation down almost three-quarters of a percentage point over the past two years," San Francisco Fed economists Regis Barnichon and Adam Hale Shapiro wrote in the regional Fed bank's latest Economic Letter. "However, elevated demand continued to contribute 0.3 to 0.4 percentage point to inflation as of September 2024."
The finding, based on an analysis of the relationship between inflation and labor market heat as measured by the ratio of job openings to job seekers, could help inform Fed policymakers as they weigh how much further and at what pace to reduce short-term borrowing costs.
The U.S. central bank began lowering its policy rate in September in response to a slowdown in inflation and cooling of the job market. After a second rate cut earlier this month, the rate now sits in the 4.50%-4.75% range. U.S. central bankers believe that level is high enough to keep the brakes on the economy, but there is broad internal disagreement over how restrictive the rate is, and therefore about when and how much to cut it further.
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Inflation Remains Sticky
Federal Reserve Boards preferred inflation gage the PCE
The increase in current-dollar personal income in September primarily reflected increases in compensation and personal current transfer receipts that were partly offset by decreases in personal interest income and proprietors’ income.
The $105.8 billion increase in current-dollar PCE in September reflected an increase of $72.1 billion in spending for services and an increase of $33.7 billion in spending for goods. Within services, the largest contributors to the increase were health care and housing and utilities (led by housing). Within goods, the largest contributors to the increase were other nondurable goods (led by prescription drugs), food and beverages, and motor vehicles and parts (led by new light trucks). These increases were partly offset by a decrease in gasoline and other energy goods.
Personal outlays—the sum of PCE, personal interest payments, and personal current transfer payments—increased $106.3 billion in September. Personal saving was $1.00 trillion in September and the personal saving rate—personal saving as a percentage of disposable personal income—was 4.6 percent.
Prices
From the preceding month, the PCE price index for September increased 0.2 percent. Prices for goods decreased 0.1 percent and prices for services increased 0.3 percent. Food prices increased 0.4 percent and energy prices decreased 2.0 percent. Excluding food and energy, the PCE price index increased 0.3 percent.
From the same month one year ago, the PCE price index for September increased 2.1 percent. Prices for goods decreased 1.2 percent and prices for services increased 3.7 percent. Food prices increased 1.2 percent and energy prices decreased 8.1 percent. Excluding food and energy, the PCE price index increased 2.7 percent from one year ago.
Real PCE
The 0.4 percent increase in real PCE in September reflected an increase of 0.7 percent in spending on goods and an increase of 0.2 percent in spending on services. Within goods, the largest contributor to the increase was other nondurable goods (led by prescription drugs). Within services, the largest contributor to the increase was food services and accommodations (led by purchased meals and beverages).
Updates to Personal Income and Outlays
Estimates have been updated for July and August. Revised and previously published changes from the preceding month for current-dollar personal income, and for current-dollar and chained (2017) dollar DPI and PCE, are provided below.
The stock market was slightly higher on Monday as Wall Street continued to size up President-elect Donald Trump’s cabinet preferences.
This weeks key data to watch
Nasdaq Leads Gains
The Dow was up 12 points, or mostly flat. The S&P 500 was up 0.5%. The Nasdaq Composite rose 0.7%.
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