A trio of economic reports on Tuesday found the U.S. economy generally facing slowing inflation, a weakening but still challenging labor market and diminishing odds of an imminent recession.
That is consistent with the market’s belief that the Federal Reserve will pause its interest rate hiking campaign and in line with the storyline of a “soft landing” for the economy despite the historical record that shows how improbable that often is.
On the inflation front, Adobe Analytics on Tuesday released its online pricing survey for August, showing prices fell 3.2% year over year after rising 0.4% for the month. Notably, while online grocery costs rose 5% on a year-over-year basis, they actually declined by 0.2% in August in the first monthly decline since May of 2021.
The overall yearly decline was led by sharp drops in the prices of sporting goods, down 7% from a year ago along with appliances, down 7.3%, and home and garden equipment, off by 6.8%. Prices of goods have generally been on a downward slope for several months. Computers fell 14.2% from a year ago.
Yet inflation remains a concern for many businesses, especially smaller ones, according to the August small business optimism index from NFIB. The trade organization’s members ranked inflation as the top issue, with 23% saying so, up 2 points from July. Some 40%, meanwhile, said filling job openings proved difficult.
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“With small business owners’ views about future sales growth and business conditions discouraging, owners want to hire and make money now from strong consumer spending,” said NFIB Chief Economist Bill Dunkelberg. “Inflation and the worker shortage continue to be the biggest obstacles for Main Street.”
In contrast, economists for the larger enterprises in the economy reported improving outlooks in the Blue Chip Economics survey released on Monday by Wolters Kluwer. Although the panel of economists sees the economy slowing in the quarter that begins Oct. 1, they also see a reduction in the odds of a recession.
The panel forecasts a 48% chance of a recession, down from 50% a month ago and 56% in July. At the same time, the economists see the unemployment rate rising from its current 3.8% to 4.5% by next summer.
The panel is split, with 57% saying the Fed has reached the end of its monetary tightening but with 18 of the 44 respondents expecting another rate increase of a quarter point. The central bank meets next week to consider interest rate policy with a majority of observers anticipating a pause in its campaign of raising interest rates.
On Wednesday, the government will release the consumer price index for August with expectations that inflation will have picked up last month on account of rising gas prices.
“Despite slowing economic momentum, investors are looking ahead into next year and things look pretty good as long as the Fed doesn’t over tighten and break something,” Jeffrey Roach, chief economist at LPL Financial, said in a client note on Monday.
“Investors will likely look past the uptick in annual headline inflation as mostly a one-off event from the recent spike in oil prices,” Roach added. “The reacceleration of headline inflation should not be enough to change expectations that the Fed will likely pause at the upcoming meeting.”
Separately, Deloitte’s CFO Signals survey found that chief financial officers are feeling more positive about the economy and their firms’ outlooks.
The executives were +22 positive in the third quarter, up from +6 in the prior quarter and the most optimistic since the first quarter of 2022. While they are concerned about geopolitical issues, they raised their year-over-year estimates for revenue growth, earnings and hiring expectations.