Economic Crossroads: Jobs, Construction, and Inflation Trends to Watch

Jeffrey Roach (00:08):

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial with some talking points for the current macro landscape. First, more long-term unemployed is indeed a warning. Investors are eagerly awaiting the upcoming jobs report, and one thing investors and Fed officials should focus on is the percentage of those unemployed for over 27 weeks. So I'm putting up a chart here on the long-term unemployed, and one thing that should capture your attention is that consistent bottoming out of this series before an economic slowdown and the shaded areas indicate recessions. Now, granted whether or not the official arbiter for calling the business cycle makes a pronouncement or not, when people have a harder time finding a job, they will cut back on spending and businesses will deal with lower sales. Second, construction spending will drag on growth. What's been interesting post-COVID is the asynchronous move in residential and non-residential construction spending.

Jeffrey Roach (01:06):

You see here that residential construction took a nosedive when the Fed started hiking rates, but non-residential activity continued to grow and that was across the board in power plants and manufacturing and even office building projects. Well, fast forward to mid-2024 and both resi and non-res activity consistently slowed. One exception is public spending on healthcare facilities, but these amounts are much smaller in numbers than the private sector values. Well, this slowdown is expected and one reason why the Fed is indeed easing policy amid that slowing economy. Third, a return to normalcy. The Fed's preferred inflation metric the core PCE deflator showed signs of normalcy in August, monthly core inflation grew between 0.1 and 0.26% for six consecutive months now. Real personal spending rose 0.4%, that's for the past two months, suggesting economic growth in Q3 could approach 2% annualized when all the data is finally collected.

Jeffrey Roach (02:11):

Annual rate of core inflation was roughly unchanged at 2.9%, but we do see risks of a three handle for September. Core services, ex housing rose 0.33 from a month ago, pushing the annual rate up to 3.4% from 3.29 in July. Inflation in hotels, restaurants, and vehicle repair, by the way, who hasn't been recently shocked by their car mechanics bill, all contributed to the monthly rise in consumer prices. Consumer demand is keeping upward pressure on these categories. Bottom line, if businesses remain in a low hire, low fire mode, the job market should remain stable enough to keep the economy out of recession, but at the same time, add frustrations for the Fed interested in easing rates without stoking greater inflation pressures. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.