August 7, 2018
We started the flow of really important data on Friday, July 27. Though the numbers were preliminary, the first snapshot of economic growth for the second quarter was quite impressive. It more than made up for a weaker first quarter and you can be sure that the Federal Reserve Board’s Open Market Committee was taking note of these numbers when they met last week — especially the jump in prices reported during the quarter.
Regardless of the report, market analysts gave less than a five percent chance of a rate hike at the meeting and they were absolutely correct in that regard. However, the strong quarterly data increased the probability of a hike at their September meeting. There will be one more jobs report released and an adjustment in the quarterly growth data before they meet again in September. Right now, the markets see all systems go for a hike in September, unless there is a surprise or two in the interim.
The Fed did not have the opportunity to view the July jobs data before they met last week, but the numbers released certainly will not change their view of a growing economy. The headline numbers showed an increase of 157,000, jobs, less than expected — but the previous two months were revised upward. The unemployment rate of 3.9% was down from 4.0%. The increase in labor costs came in at 2.7%, close to the rate of inflation. Apparently, wages are not growing because workers are returning to the work force and worker shortages are only occurring within pockets of the economy.
Source: Origination Pro
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