Last week marked my three-year anniversary as head of the ADP Research Institute. It’s been an https://www.bls.gov/cpi/eventful three years in the economy.
Main Street has been on a bumpy ride these past years. As I reflect on that journey, there are three data points we can be thankful for this holiday season.
The Consumer Price Index
Prices as measured by a basket of consumer goods and services increased at the slowest pace in over a year. The U.S. Consumer Price Index rose 3.2 percent in October from a year earlier, a far cry from its peak of 9 percent growth in June 2022.
Economists like to strip volatile food and energy prices from this index to get a more accurate read on the direction of inflation. This is known as core CPI. Here, the data still looks promising.
The service sector – which includes information technology, hotels, accounting, and other widely varied industries – had been heating up. But last month it was more warm than hot.
Core CPI rose modestly in October from September and was basically flat compared to last year, at 4 percent. While we’d like to see that number fall further (and faster) toward the Fed’s 2 percent target, let’s be thankful that inflation is slowing.
The unemployment rate
One of the marvels of the current economy is that the Federal Reserve has increased interest rates at a rapid pace without inflicting major damage on hiring.
Yes, the unemployment rate has edged up over the past three months, but at 3.8 percent it’s still near record lows. Even better, prime-age labor force participation is higher than it was before the pandemic. And layoffs, as measured by initial jobless claims, also are near historic lows.
This trifecta of healthy indicators demonstrates a greater balance between labor supply and demand than we’ve seen in years.
The biggest part of the economy is the consumer. That’s all of us. Consumer spending accounts for 70 percent of the U.S. economy.
The latest data shows that consumers are going strong into the end of the year, even though interest rates are at their highest levels in more than 20 years.
September retail spending numbers were revised upwards. October retail sales – an early signal of consumer spending – fell slightly but were stronger than economists expected.
The healthy labor market is one reason consumer spending has seemed resilient to higher interest rates.
After three years, Main Street has some economic news to be thankful for this holiday season.
MainStreet Macro is on vacation this week and will publish again Dec. 4. Until then, the team at ADPRI wishes you and yours a very Happy Thanksgiving.