July was a very interesting month for economic data, with several of the series that we watch closely at Astor pointing in different directions. The Astor Economic Index®, our attempt to summarize these data points, ended the month in below-average growth territory and somewhat softer than the month before.
The labor market has been a continued source of resilience for the U.S. economic outlook, with employment back at pre-pandemic levels, and indeed, payroll figures have been somewhat at odds with the AEI of late. Nonfarm payrolls gained by 538,000 m/m, which was much higher than survey expectations of 250,000 and continues the trend of stronger than forecast payroll prints. Gains were broad-based and seen across nearly every sector, and U6 unemployment (which includes part-time workers) was steady at 6.7%. Jobless claims have begun to tick up again, with the four-week average at 252,000 – a figure that remains low historically but is worth keeping an eye on.
Inflation showed signs of moderation on the back of declining energy prices. Headline CPI was 0% m/m (8.5% y/y), with core up 0.3% m/m (5.9% y/y). Travel prices and used cars also contributed to the decline. We are reluctant to draw any conclusions around near-term trends from this report: the story here is that energy prices giveth and taketh away. Measures of underlying inflation like median CPI or trimmed-mean CPI are still quite elevated and point to inflation of around 6-7% in the medium term. The Producers Price Index for Final Demand, which was down 0.5% m/m, tells a similar tale, with some softening seen in goods but ongoing strength in service prices. Inflation expectations remain well anchored, and some have moderated of late.
None of this is likely to be view changing for the Fed. Inflation across goods and services are substantially higher than the Fed’s target, energy notwithstanding, and the tight labor market indicates that the U.S. economy can withstand more rate hikes. In sum, the U.S. economy is at a peculiar crossroad, with weak real growth, well above trend employment dynamics, and cooling commodity prices just as other components of inflation pick up. At Astor, we will be watching stickier components of CPI, like housing, as an indicator of further inflation persistence, as well as weakness in PMIs and the global economy.
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The Astor Economic Index® (AEI): The AEI is a proprietary index created by Astor Investment Management LLC. It represents an aggregation of various economic data points. The AEI is designed to track the varying levels of growth within the U.S. economy by analyzing current trends against historical data. The AEI is not an investable product and it should not be used as the sole determining factor for your investment decisions. The Index is based on retroactive data points and may be subject to hindsight bias. There is no guarantee the Index will produce the same results in the future. All conclusions are those of Astor and are subject to change. Astor Economic Index® is a registered trademark of Astor Investment Management LLC.