The Astor Economic Index was essentially unchanged month over month, ending June at a level consistent with strong to very strong economic growth. Of course, a quiet month in the AEI® does not mean that there is no interesting economic data to dissect, and we delve into some highlights below.
The story of the past few months has been that job openings are plentiful and willing workers are not, so it was encouraging to see payrolls pick up steam, with nonfarm payrolls increasing by 850,000. This gain was helped along substantially by renewed hiring in hospitality and leisure, which has suffered the largest share of pandemic job losses. U-6 underemployment (which includes discouraged workers) ticked down to 9.8%, suggesting that more workers are willing to enter the workforce, and in a sign of employer concessions, average hourly earnings climbed by 0.3% m/m (3.6% y/y). In an Indeed.com survey, most unemployed workers suggested continued COVID-19 fears were to blame for not entering the workforce, with unemployment benefits least likely to impact their job hunt.
ISM Purchasing Manager Indexes have begun to cool recently but remain at very high levels, with manufacturing at 60.6 and services at 60.1 (levels above 50 indicate expansion). Labor shortages have become broadly apparent in both sectors, with employment indexes falling below 50. It will come as no surprise that prices remain highly elevated in both indexes.
On the topic of inflation, May’s CPI inflation print (published on June 10th) came in hot at 5% y/y (core was 3.8%) – our readers are likely tired of being told about the base effect, so I will skip the usual caveats. This was the highest reading since 1992, but as we have pointed out in previous writings, increases were largely seen in “post-pandemic” categories like used cars and airfare. Expectations for next month suggest moderation of headline inflation into the 4% range, and it is worth noting that forward looking inflation measures have begun to decline of late. As of this writing (July 8th), the yield on 10 year U.S. treasuries is below 1.3%, suggesting that inflation risk premiums or inflation expectations have declined, and that bond market participants are falling in line with the Federal Reserve’s view that inflation is likely to be transitory.
Broadly speaking, the trend for the U.S. economy is one of continued recovery and growing strength. Nonetheless, we have some ways to travel before output reaches pre-pandemic trend levels, and the labor market continues to lag strong growth figures. We will be watching labor market dynamics and inflation trends closely in the weeks to come.