Data reports show a balanced economy for the next president
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Inflation is a hair's width away from the Fed's target. Spending and incomes are growing nicely. Wage pressures on businesses keep moderating.
Why it matters: That is the happy picture of the economy offered by Thursday's rush of data. It summarizes what the next U.S. president, who will be chosen in five days and inaugurated in less than three months, will inherit.
- It is a strikingly balanced picture in which Americans are seeing their incomes rise in inflation-adjusted terms and spending more, thus powering growth forward. Yet employers' payroll costs are no longer rising at the breakneck pace of a couple of years ago.
- That confluence helps explain why the stock market has touched new highs this month and the Federal Reserve feels comfortable cutting interest rates.
Driving the news: The Fed's preferred inflation measure, the Personal Consumption Expenditures Price Index, was up 2.1% over the 12 months ended in September, the Commerce Department said Thursday morning. That's barely above the central bank's 2% target.
- The same report showed that personal income rose 0.3% last month. After taxes and inflation, incomes were still up 0.1%.
- Consumer spending rose a robust 0.5% in September, one of the reasons overall GDP growth came in at a strong 2.8% for the third quarter.
By the numbers: In a separate report, the Labor Department said that employers' wage and benefit costs rose 0.8% last quarter and 3.9% over the last year. In contrast, the year-on-year Employment Cost Index surpassed 5% when it peaked in 2022.
- Also Thursday morning, new data showed the number of initial jobless claims falling to 216,000 last week, the lowest since May, as the impact of hurricanes faded and employers showed little inclination to lay off workers.
The big picture: Put it all together, and you have an economy that is working pretty well both for households and businesses.
- The ultra-high-pressure economy of 2021 and 2022 — in which Americans faced the pain of soaring prices and businesses faced acute labor shortages — has given way to something more pleasant.
Between the lines: That cooldown is what has given the Fed confidence it can safely cut interest rates — as it is likely to do so for the second time next week — without reigniting inflation.
- And that reversal of Fed policy is removing another pain point for households and businesses and fueling the aforementioned stock market surge.
The bottom line: "The economy is in pretty good shape," Bill Adams, chief economist for Comerica Bank, wrote in a note.
- "Yes, prices are high, but the trend has changed — incomes are outpacing price increases again, and over time that will make the cost of living less stressful for household budgets," he added.
