Low Inflation May Trump Job Growth In Fed Decision
Last Friday we saw payroll growth for August that missed expectations at the headline level but otherwise showed signs of labor strength.
Thursday, September 10, 2015 - 00:00
If the headline number caused a spark of concern, today’s jobless claims report may keep the ember smoldering, though the numbers are still largely healthy. The number of Americans filing first-time claims for unemployment insurance fell 6000 last week to 275,000, an ostensibly positive result, but claims have been so unusually low in recent months that the four-week moving average ticked up to 275,750, which is more than 5000 worse than things were looking a month ago. Continuing claims, at 2.26 million (reported for the week before initial claims) was little-changed from the week prior, but the four-week moving average also compares unfavourably to the month-ago measure. Claims are still very low by historical standards (initial claims have come in below 300,000 for 27 weeks in a row), but clearly not quite as good as they were recently.
It isn’t clear whether this even constitutes a minor blip for the labor market and, as such, it is unlikely to trouble the Fed given the bigger picture, which is one of huge strides of improvement having been made in the last few years. What is likely to give officials at the central bank a headache, though, is the problem of low inflation.
The latest cross-border price information shows significant declines in both export and import prices, which is likely to feed through into lower consumer prices as a whole. Export prices fell 1.4% in August, far exceeding the consensus estimate which had pointed to a 0.4% drop. Year-on-year export prices were down 7.0% in August. Falls in import prices were even more stark, plunging 1.8% on the month after a 0.9% decline in July. That took the year-on-year change in August to an astounding -11.4%, the lowest measured since July 2009. The Fed has said time and again that its decision on whether to tighten monetary policy or not will be dictated by the incoming data; judging by this latest data, rather than inflation moving towards the Fed’s 2% target, there is a danger that prices are shifting even further away and on that basis, it’s difficult to see how the more dovish case for policy will not prevail at the September FOMC meeting.
Across the pond, the Fed’s peers at the Bank of England decided to leave monetary policy on hold today, maintaining the UK’s bank rate at 0.5% and quantitative easing at £375 billion. Just as with the August meeting, there was only one member of the nine-man committee that voted for a rate rise. The BoE now releases minutes of the meeting simultaneously with the decision, and the notes reveal concern over a slowdown in global growth, particularly China, as well as the potential impact of falling commodity prices on CPI. GBP/USD was up 0.2% at 1.5400 by 09.30 ET.
Early trading was muted on Wall Street this morning, with stocks prices little-changed shortly after the opening, the Dow Jones up just 4 points or 0.03% at 16,258 and the S&P 500 Index down 0.08% at 1940.5.
Apple ($AAPL) revealed a number of new products at a special event yesterday afternoon, including fresh versions of its flagship iPhone. Shares in the company were up 0.77% in early trading at $111.00.
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