Surprise! Core Inflation Keeps Dropping Below Fed Target of 2 Percent, Economic Surprise Index Negative

The annual Federal Reserve retreat in Jackson Hole is underway and the theme of the conference is Inflation Dynamics and Monetary Policy.

I wonder if any of the participants noticed that Core Inflation for July was released this morning and it shows that it has been dropping since 2012 … and is only 1.235% YoY?

The core PCE deflator — the Fed’s preferred metric of core inflation — rose 0.1 percent in July (0.07221 unrounded). This was sufficiently weak to allow the year-on-year growth rate to slip to 1.2 percent from 1.3 percent previously. While a one-tenth deceleration is certainly not dramatic, it is unusual given that this metric has held steady at 1.3 percent in every month of the first half of 2015. It has not been below 1.3 percent since March 2011. It is hard to see how the July income and spending report will reinforce policy makers’ confidence in a rebound in inflation toward their target.


And the economic surprise index is painfully negative.


So will The Fed raise the Fed Funds rate in September? The futures data says no. The implied probability of a hate hike is 30%.


Finally, Q3 GDP according to the Atlanta Fed’s GDP NOW tracker has fallen to a measly 1.2%.

gdpnow-forecast-evolution q3

I wonder if any of the participants at Jackson Hole are looking out the windows for Jackalopes? Here is a photo of Fed Chair Janet Yellen riding one.


wtf 2

Recovery?? Quarterly Increase In Wages (ECI) Is Smallest On Record

The quarterly increase in US wages was just 0.2% according to the latest release of the Employment Cost Index.

In fact, it is the lowest on record.


The ECI tracks worker compensation over time, so it has some advantages over competing measures of wage growth (which are also lousy).
Of course, with 93.6 million NOT in the labor force, it is difficult to get wage growth.

Not exactly great news for the housing and mortgage market. With 7,443,580 U.S. residential properties that are seriously underwater, low wage growth is as unwelcome as a scorpion in your shoe in the morning.


Yes, it is part of the great bartender recovery!


Hey Bartender! Fed Looks To Raise Rates In Face of The Great Bartender Recovery

This has been a SLOWWWWW economic recovery. Full-time employment is ALMOST back to 2007/2008 levels of full-time employment. However, average wage growth is almost 50% lower than in 2007 despite The Fed not having raised The Fed Funds Target rate since 2006.


One reason that wage growth is so slow is that many of jobs added post-2007 have been lower wage service jobs (e.g., bartenders).


Here is a chart courtesy of Zero Hedge showing bartender growth versus manufacturing job decline.

Mfg workers vs waiters_0

Someone sent me an email repeating the common meme: “But wage growth will remain slow until unemployment bottoms out!” Not true. The toxic green line shows today’s unemployment rate compared to average YOY wage growth. This “recovery” is the lowest wage rate given the current unemployment rate.


So, let me get this straight. The Fed wants to raise rates in the face of stagnant wage growth and a surge in bartenders.

Even Goldman Sachs CEO and Chairman Lloyd Blankfein sees a jolt when The Fed raises rates.

Here is a photo of Fed Chair Yellen and former Fed Chair Bernanke sharing a beer in front of their favorite bartender.


Hey bartender! This is your recovery!