They Don’t Call It the Mean PCE for Nothing
The latest reading on the Dallas Fed trimmed mean PCE isn’t quite deflationary just yet. But for leery policymakers who would rather not have to resort to additional unconventional monetary policy, such as asset purchases, the trend sure is worrying. That’s particularly true against the bleak employment backdrop that plagues most medium-term forecasts, including the Fed’s own.
The Dallas Fed data, which excludes goods whose prices fluctuate most dramatically, showed a 0.8 percent annualized rate of inflation for June, and the May reading was revised down to 0.8 percent from 1.1 percent. “Of the 178 PCE components that, potentially, go into constructing the trimmed mean, 73 (or 41 percent) fell in price,” the Dallas Fed said in its analysis of the data.
And, just two days ahead of Friday’s employment report, the job market signals coming from the private sector are still far too tepid to bring down the country’s elevated 9.5 percent unemployment rate. The ADP report showed that just 42,000 new jobs were created in July. In small business, that number was only 21,000. Economists at UBS write:
Hiring at these firms typically leads payroll improvements but as yet has been fairly feeble. For comparison, in 2002, the jobless recovery, small businesses hiring rose 13k per month on average, while total private payrolls were still falling 64k per month. In 2003, small businesses hired 43k per month on average, versus overall private payroll growth of 11k per month. So far this year (through June), small business hiring of 0k per month on average appears weak in comparison to the 99k per month rise in BLS private payrolls.
Economists in the latest Reuters poll are looking for a net decline of 65,000 jobs and an uptick in the unemployment rate to 9.6 percent.