JPMorgan Econ FI-United States-109990044

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Michael Feroli (1-212) 834-5523

michael.e.feroli@jpmorgan.com

JPMorgan Chase Bank NA

Michael S Hanson (1-212) 622-8603

michael.s.hanson@jpmchase.com

JPMorgan Chase Bank NA

Murat Tasci (1-212) 622-0288

murat.tasci@jpmchase.com

J.P. Morgan Securities LLC

Abiel Reinhart (1-212) 270 4058

abiel.reinhart@jpmchase.com

JPMorgan Chase Bank NA

North America Economic Research

23 August 2024

JPMORGAN

Next week promises to be relatively quiet before the fire-

works of the data deluge after Labor Day. We expect next Fri-

day’s core PCE figure will be up 0.12%m/m, which would

leave the year-ago number unchanged at 2.6%.

Cuts are coming

Chair Powell’s remarks at the Jackson Hole forum left little

room for doubt that the Fed will soon be cutting rates, as he

frankly put it: “The time has come for policy to adjust.” He

didn’t tip his hand on the expected size of that adjustment.

Instead, he said “the timing and pace of rate cuts will depend

on incoming data, the evolving outlook, and the balance of

risks.” While noncommittal on size, this was more open-end-

ed guidance than what we’ve heard from some other Fed offi-

cials, who have recently spoken about “methodical” rate cuts.

Overall, Powell’s remarks leaned dovish, as he stressed the

FOMC’s attentiveness to labor market conditions. Powell did

not express worry about the current state of the labor market,

but also offered that the Fed does “not seek or welcome fur-

ther cooling in the labor market.”

We continue to look for the Fed to start off the easing cycle

with a 50bp cut next month, though that will depend in part

on the August jobs report. As Powell noted, “The current lev-

el of our policy rate gives us ample room to respond to any

risks we may face, including the risk of unwelcome further

weakening in labor market conditions.” If the August jobs

report validates the July weakness, then we believe they

should quickly make use of that ample room.

While the labor market headlines stuck out, Powell also

expressed growing confidence in inflation returning to 2 per-

cent. In fact, much of the body of the speech was a retrospec-

tive on inflation developments over the past four years. In

that, he attributed “much of the increase in inflation to an

extraordinary collision between overheated and temporarily

distorted demand and constrained supply.”

Earlier in the week, the minutes to the July 30-31 FOMC

meeting (which occurred just before the release of the weak

July labor report) similarly skewed dovish and showed a

committee more focused on labor market risks than the possi-

bility of a renewed jump in inflation—even if they still

judged current inflation as somewhat elevated. While “sever-

al” had contemplated cutting 25bp at the last meeting, a “vast

majority” were prepared to cut at the September meeting, and

“many” saw policy as currently restrictive.

Like many others, participants were trying to understand how

much of the unemployment rise reported at the time of the

meeting was due to rising labor supply and how that rise

should be weighed against less concerning news from new

jobless claims and layoff rates. On balance, however, they did

•Fed’s Powell: “The time has come for policy to adjust”

•Limited guidance leaves the debate over a 25bp or

50bp cut wide open; we continue to expect the latter...

•… but that will depend on the August jobs report after

mixed labor market news this week

•Expected soft core PCE inflation in focus next

The path to rate cuts is now wide open. Fed communications

this week—both the minutes to the late July FOMC meeting

and Powell’s speech at the Jackson Hole conclave—were

quite direct in signaling that policy rates will be reduced at

the September meeting and presumably further in the fall and

winter. Neither the minutes nor Powell shed light on the mar-

ket’s current debate over a 25bp or 50bp cut next month,

which makes sense given there’s almost a full monthly slate

of data between now and the next meeting.

We still look for a 50bp cut in September. With risks to the

inflation mandate ebbing and risks to the employment man-

date growing, we think it makes sense for policy to be closer

to neutral, which is likely at least 150bp below where rates

are now. That said, the inconclusive nature of the Fed’s recent

guidance with respect to pace suggests that the next employ-

ment report will dictate whether our forecast is realized or

whether the Fed takes a more gradualist approach to easing.

Staying on the topic of the labor market, the latest news has

been mixed. Once again, weekly jobless claims remained

tame, consistent with a healthy jobs market (Figure 1). How-

ever, the benchmark level of employment in March 2024 was

revised down by a historically sizable 818,000 jobs. Data

from the Business Employment Dynamics survey through

December 2023 indicate that the BLS’s preliminary estimates

of job growth attributable to the net of business births and

deaths may have been overstated, and so it is possible that

overstatement could extend beyond March 2024.

1.55

1.60

1.65

1.70

1.75

1.80

1.85

1.90

180

200

220

240

260

280

Jan 1, 23 Apr 11, 23 Jul 20, 23 Oct 28, 23 Feb 5, 24 May 15, 24 Aug 23, 24

Thousands, sa

Figure 1: Jobless claims

Millions, sa

Source: Department of Labor, J.P. Morgan

Initial

claims

Continuing

claims

United States

Michael Feroli (1-212) 834-5523

michael.e.feroli@jpmorgan.com

JPMorgan Chase Bank NA

Michael S Hanson (1-212) 622-8603

michael.s.hanson@jpmchase.com

JPMorgan Chase Bank NA

Murat Tasci (1-212) 622-0288

murat.tasci@jpmchase.com

J.P. Morgan Securities LLC

Abiel Reinhart (1-212) 270 4058

abiel.reinhart@jpmchase.com

JPMorgan Chase Bank NA

North America Economic Research

United States

23 August 2024

JPMORGAN

not appear to be discounting the increase. Moreover, the

Committee was anticipating the possibility of downward pay-

roll revisions, and “several assessed that payroll gains may be

lower than those needed to keep the unemployment rate con-

stant with a flat labor force participation rate.”

The labor market giveth, and taketh away

In an otherwise fairly quiet data week, jobless claims were

comforting in their recent stability but the unexpectedly large

preliminary benchmark revision to payrolls cast a broader pall

over markets. Data on initial claims were collected during the

reference week for the payroll survey, and do not point to

another step down in job growth for August. It’s unclear how

much signal for upcoming job growth one should take from

the 818K preliminary downward revision to March 2024 pay-

rolls—the final revision will take place early next year—but

it helped narrow some of the unusually wide gap between the

establishment and household measures of employment. The

revisions suggest CES job growth likely averaged around

175K for the 12 months through March, rather than the 242K

per month on average as reported, although history suggests a

slightly smaller final revision is common. That said, the pos-

sibility that payrolls are still being overstated since March

2024 remains: the birth-death model looks to still be adding

more jobs than recent (albeit lagged) data from the Business

Employment Dynamics suggest is likely (Figure 2).

-2000

-1000

1000

2000

3000

00 05 10 15 20

000s, 4Q sum

Figure 2: Net job creation from establishment birth/death

Source: BLS, J.P. Morgan

BED jobs from

openings less closings

CES

forecasted

birth/death

Actual birth/death outcome

in CES data, as reported in

the annual benchmark

Mixed signals from home sales

After a pop near the start of the year, most housing market

data have trended back down over the past several months.

For July, new home sales surprised with a strong 10.6% pop,

whereas existing home sales modestly disappointed with a

more paltry 1.3% rise. Most importantly, the July single-fami-

ly new home sales release came with substantial upward revi-

sions to prior months that suggests a better trajectory for this

year (Figure 3). New home sales tend to be volatile but they

also tend to lead existing home sales (as the former reflects

signed contracts while the latter are not recorded until a con-

tract is closed). However, other leading indicators of existing

home sales, such as mortgage purchases applications or pend-

ing home sales, continue to point to existing home sales

remaining stuck at low levels. Inventories of existing homes

remain low, although as interest rates come down that could

stimulate sales later this year. By contrast, inventories of new

homes remain quite elevated, which is restraining price

growth and likely weighing on housing starts.

3.0

4.0

5.0

6.0

7.0

0.30

0.50

0.70

0.90

1.10

2012 2014 2016 2018 2020 2022 2024

Mn, saar, both scales

Figure 3: Existing and new single-family home sales

Source: NAR, Census Bureau, J.P. Morgan

Existing 1-family

home sales

New 1-family

home sales

Divergent flash PMI details

In a sign of stability, the all-industry flash PMI for August

(54.1) was nearly unchanged from July (54.3). But beneath

the headline, the details offered divergent messages. First,

looking across sectors, the manufacturing index fell to 48.0.

This marks the second consecutive monthly decline, reversing

much of its gradual improvement since early 2023 and taking

the index to its lowest level since December. The weakness in

the manufacturing PMI appears broad-based across survey

components. By contrast, the business activity headline for

services firmed marginally to 55.2 in August, with new busi-

ness activity also well supported. While there has been some

speculation that services activity would cool as the post-pan-

demic recovery normalized and the prospect of lower interest

rates gave a lift to manufacturing, in reality the services sec-

tor remains the main impetus for the continued economic

expansion.

Second, the employment flash PMI sent a concerning signal

ahead of the August jobs report, with the all-industry measure

sliding to its lowest reading in this cycle (outside of April) of

48.9. Weakness was evident in both the manufacturing and

services PMIs, although the latter has been quite choppy of

late. That said, we do not tend to take much of a signal from

this report for the upcoming payroll print as monthly moves

in the employment PMI are not particularly informative for

the jobs report.

Next week we will get inflation readings in the monthly PCE

report but not much labor market news other than the weekly

claims. The most important piece of information will arrive

after Labor Day with the August jobs report, which might

incorporate a very modest post-Beryl addition to payrolls.

Michael Feroli (1-212) 834-5523

michael.e.feroli@jpmorgan.com

JPMorgan Chase Bank NA

Michael S Hanson (1-212) 622-8603

michael.s.hanson@jpmchase.com

JPMorgan Chase Bank NA

Murat Tasci (1-212) 622-0288

murat.tasci@jpmchase.com

J.P. Morgan Securities LLC

Abiel Reinhart (1-212) 270 4058

abiel.reinhart@jpmchase.com

JPMorgan Chase Bank NA

North America Economic Research

23 August 2024

JPMORGAN

Data releases and forecasts

Sources for all: ADP/Moody’s Analytics, BEA, BLS, Census Bureau, Conference Board, Department

of Labor, Federal Reserve Board, ISM, J.P. Morgan forecasts, NAHB, NAR, NFIB, NY Fed, Philadel-

phia Fed, S&P Global, Standard & Poor’s, University of Michigan, US Treasury

Mon

Durable goods

Aug 26 %m/m, sa

8:30am Apr May Jun Jul

New orders 0.2 0.1 -6.7 6.5

Ex transportation 0.4 -0.2 0.4 -0.1

Ex air and def (core) 0.2 -0.9 0.9 -0.2

Shipments 1.1 -0.4 1.2 0.0

Nondef cap. gds ex air 0.3 -0.6 0.2 0.0

Inventories 0.1 0.1 0.0

Durable goods orders should increase sharply in July (fore-

cast +6.5%m/m) because of a rebound in civilian aircraft

orders, whose plunge the prior month had caused total orders

to decline 6.7%. Orders information from Boeing was like-

wise soft in June but substantially recovered in July. Outside

of the aircraft story, we look for 0.5%m/m fall in motor vehi-

cle orders and shipments based on output data in the IP

report, and we also look for a small pullback in core (nonde-

fense ex aircraft) capital goods after a large 0.9%m/m gain

the prior month. Looking past monthly volatility the core cap-

ital goods series has been mostly flat over the last couple

years, consistent with low readings from capex plans in the

regional Fed surveys, as well as subdued readings on the ISM

new orders index.

Industry data suggest aircraft shouldn’t have much of an

impact on shipments following a 34%m/m rise in July, and

we expect that total shipments will be flat. Like with orders,

core capital goods shipments have recently been mostly sta-

ble, and we expect that continued in July.

Tue

Consumer confidence

Aug 27 Sa

10:00am May Jun Jul Aug

Conference Bd index 101.3 97.8 100.3 101.0

Present situation 140.8 135.3 133.6

Jobs plentiful 37.0 35.5 34.1

Jobs hard to get 14.3 15.7 16.0

Labor mkt diff 22.7 19.8 18.1

Expectations 74.9 72.8 78.2

We forecast that the Conference Board consumer confidence

index increased slightly to 101.0 in August from 100.3 in

July. The Michigan consumer sentiment index rose in its pre-

liminary August survey, stemming from an improvement in

expectations among Democratic respondents following the

withdrawal of Joe Biden from the presidential race, which

more than outweighed lower assessments of current condi-

tions. That same expectations boost could carry over to the

Conference Board survey. The July result may also be revised

up: the preliminary July Conference Board survey ended on

July 22, just as Biden withdrew, so Democratic respondents

in the final survey were probably more positive than respon-

dents in the preliminary survey.

The most important piece of information in this report will be

the labor market differential, the share of respondents who

report jobs are plentiful less the share who report jobs are

hard to get. Declines in this measure are associated with

increasing unemployment. We’ve previously noted that the

measure, which is currently at 18.1, tends to be more strongly

correlated with the unemployment rate once it gets below

roughly the low 20s.

Thu

Aug 29

8:30am Insured

Wkly 4-wk avg Wkly 4-wk avg Jobless,%

Jun 15¹ 239 233 1832 1814 1.2

Jun 22 234 236 1856 1831 1.2

Jun 29 239 239 1847 1839 1.2

Jul 6 223 234 1860 1849 1.2

Jul 13¹ 245 235 1844 1852 1.2

Jul 20 235 236 1869 1855 1.2

Jul 27 250 238 1871 1861 1.2

Aug 3 234 241 1859 1861 1.2

Aug 10 228 237 1863 1866 1.2

Aug 17¹ 232 236

Aug 24 225 230

1. Payroll survey week

Jobless claims

Thousands, sa

New claims (wr.)

Continuing claims

We expect that initial jobless claims declined to 225k in the

week ending August 24 from 232k the prior week. There may

be some residual seasonality that contributed to claims rising

back in May and June, and claims were then kept elevated for

much of July because of Hurricane Beryl-linked claims in

Texas and what were likely claims related to summer auto

plant shutdowns in Michigan. Seasonally adjusted claims

declined last year during August and September and we think

this could happen again this year absent further labor market

deterioration. Not seasonally adjusted claims are tracking a

similar path to last year, and the seasonal factors in the next

couple months are also similar to last year.

For continuing claims, after a quick rise between late May

and late June the rate of growth has slowed and the level may

be stabilizing. It would be a positive signal for unemployment

if continuing claims were to stop increasing.

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1MichaelFeroli(1-212)834-5523michael.e.feroli@jpmorgan.comJPMorganChaseBankNAMichaelSHanson(1-212)622-8603michael.s.hanson@jpmchase.comJPMorganChaseBankNAMuratTasci(1-212)622-0288murat.tasci@jpmchase.comJ.P.MorganSecuritiesLLCAbielReinhart(1-212)2704058abiel.reinhart@jpmchase.comJPMorganChaseBankNA1...

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