More and more information is becoming available that will be relevant to the FOMC’s policy formulation process at its September 17–18 meeting. As we know, GDP growth in Q2 was still firm at 3%, but more recent data suggest that a slowing is in progress. Perhaps most informative is the most recent Beige Book, which was released September 4th. It showed a marked increase in the number of districts reporting some slowing activity, from five in the last report to nine in the August report. Three districts reported slight increases (Boston, Chicago, and Dallas), while four districts reported flat or stable growth. District labor markets were basically up slightly or flat, and wages increased only slightly. Finally, prices were up only slightly. Overall, the picture is one of slowing economies at the district level and only small increases in employment and prices.
We have now also received new aggregate data on the labor market. New claims for unemployment insurance declined slightly to 227,000 in the week ending August 31st, down from 232,000 the previous week. New claims have remained relatively stable in the 227,000–234,000 range in August, down slightly from what they were in July. Recent data also suggest that the economy added only 142,000 new jobs in August and the unemployment rate declined from 4.3% in July to 4.2% in August. But the labor market is likely weaker than previously thought because June’s 179,000 jobs were revised down to 118,000 and July’s 114,000 jobs were revised down to 89,000.
The picture that is emerging is of a slightly slowing economy with prices slowly starting to move closer to the FOMC’s target of 2%, but the labor market’s weakening provides even more support to Chairman Powell’s assertion that the time may be right for a change in policy as the balance of risks appear to have changed, and a 25-basis-point cut at the September meeting now seems even more likely.
Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
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