The latest consumer confidence survey for the USA ticked up in July, but the key detail or information/signal within the survey comes from a subindex called “Jobs Plentiful” – and this subindex has risen to a 16-year high. It’s also worth noting, on the flipside, the “Jobs Hard to Find” subindex has also dropped to a 16-year low. Whichever way you measure it consumers are saying that the job market is the best its been in more than a decade. And you can verify it with the small business survey which shows firms are having a harder time finding skilled workers – simply put this is an increasingly tight labor market.
So what? And where's the inflation? First on the so-what, this is a key metric or performance area for the Fed and the box is basically ticked on its employment mandate, this means the chart below should lead you to expect more normalization/tightening of monetary policy by the US Federal Reserve. A tight labor market should also be leading to higher age growth, which in theory should also be putting upward pressure on inflation. The swings in the oil price and US dollar account for a certain portion of the tickup and current tickdown in inflation, and these base effects are almost completely washed out now, and if anything the weaker USD of the past few months should have an inflationary impact at the margin. So again, I always say you should look first at the data before trying to anticipate what the Fed will say let alone do. And the first chart below says to me that we should expect more not less tightening from the Fed. So be on the watch for possible introduction of passive QT from the Fed in September.
The small business survey says firms are finding it harder to fill jobs, and consumer confidence survey that consumers are saying jobs are easier to find. Simply put, this is an increasingly tight labor market.
Wage growth has stabilized, and CPI inflation looks to be also stabilizing after slowing. The key question remains whether that previous chart will lead to more movement here. Base case = yes.
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Article by Callum Thomas, Top Down Charts
