Page 4 - Market Outlook Q2 2024

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Economic Overview

Current State of Inflation Getting Closer to Fed’s Goal of 2 Percent

As of June 2024, the inflation rate in the U.S. stands at 3.3% for the 12 CONSUMER SENTIMENT
months ending in May 2024. This marks a significant decrease from the
peak of 9.1% in June 2022. The latest data from the Bureau of Labor Capital Economics reported the University of Michigan’s (UM) Consumer
Statistics (BLS) indicates that the Consumer Price Index (CPI) for May Sentiment Index fell to a seven-month low of 65.6 in June, down from
2024 remained unchanged on a seasonally adjusted basis, after a 0.3% 69.1 in May. This decline suggests that households are experiencing
increase in April . increased pressure due to higher interest rates and persistently
elevated consumer prices. Additionally, concerns over high prices and
Key contributors to the current inflation rate include a 5.4% annual weakening incomes have contributed to a dip in personal financial
increase in shelter costs and a 4.0% rise in food away from home prices assessments.
over the past year. The energy index saw a decrease of 2.0% in May, with
gasoline prices dropping by 3.6% , according to BLS. In June 2024, the UM’s Expectations Index dropped to 67.6 from 68.8
in May. This represents a 1.74% decrease from the previous month, but
Overall, while inflation has moderated significantly from its recent a 10.64% increase compared to the same period last year, when the
highs, it remains an important economic factor, affecting purchasing index was at 61.1, according to UM’s Survey of Consumers . This decline
power and cost of living . reflects growing consumer concerns about economic conditions,
higher interest rates, and inflation pressures, which are influencing their
As of May 2024, the current state of wage growth and inflation shows outlook for the future.
a nuanced picture:
PERSONAL CONSUMPTION EXPENDITURES
WAGE GROWTH
The Personal Consumption Expenditures (PCE) for May 2024 was
• Nominal Wage Growth: According to the Federal Reserve $19,337.8 billion. This figure represents a slight increase from April
Bank of Atlanta’s Wage Growth Tracker, the median wage 2024, which was $19,289.9 billion, according to the Bureau of Economic
growth over the past 12 months is around 5.0%. This measure Analysis. April figures were in line with expectations.
tracks the percent change in the hourly wages of individuals
(measured over a 12-month span). The Fed closely monitors the PCE Price Index, particularly the Core
PCE Price Index, which excludes volatile food and energy prices. Core
• Wage Growth: Real wages, which adjust nominal wage inflation (which pulls out energy and food) was up 0.1% but April was
growth for inflation, have shown modest gains. From May revised upward to 0.3%. This figure was better than expected, but still
2023 to May 2024, real average hourly earnings increased by ahead of the Fed’s aim of a 2% inflation rate over the long term.
0.8%, which suggests that wage growth has slightly outpaced
inflation during this period, according to BLS. PCE data reflects consumer spending, which accounts for about two-
thirds of U.S. economic activity. By analyzing PCE trends, the Fed can
• Employment Cost Index: BLS reported compensation costs assess the overall economic health and consumer confidence.
for civilian workers increased by 4.6% for the 12-month period
ending in March 2024, with wages and salaries rising by 4.5% IMPORTANCE OF PCE
over the same period .
Based on PCE data, the Fed adjusts its monetary policy to achieve its dual
Overall, while nominal wage growth is robust, real wage growth is mandate of maximum employment and stable prices. If PCE indicates
modest but positive, indicating that wages are growing slightly faster rising inflation above the target, the Fed may raise interest rates to
than inflation, thereby improving purchasing power for workers. This cool down the economy. Conversely, if PCE shows weak spending and
dynamic is crucial for the Federal Reserve as it assesses the balance low inflation, the Fed may lower interest rates to stimulate economic
between wage growth and inflation in its monetary policy decisions. activity.