The “Relief Rally” is continuing into its second month. Markets are celebrating signs that inflation has begun to ease. While the inflation rate does remain elevated, the July Consumer Price Index (CPI) report came in at an annual rate of 8.5%, compared to June’s 9.1% reading. Falling gasoline prices are helping to ease the high rates.
While it is likely that the Federal Reserve’s (the Fed) aggressive policy of interest rate hikes is responsible for the easing of inflation, it is also likely that the same rate increases are causing an economic slowdown. The Fed continues to walk a fine line between bringing inflation down to target levels while not killing the economy.
Employment continues to be a positive economic indicator. The latest job creation numbers for the month of July showed an unexpected increase in hiring – a total
of 528,000 new jobs were created (the market expected that number to be 258,000).1 U.S. unemployment rates decreased for the month, down to 3.5% from
June’s 3.6%. July’s reading of 3.5% is significant – it’s the lowest rate since February of 2020.2 Finally wages unexpectedly surged, with the average hourly rate growing 0.5% for the month and 5.2% from a year ago.3
In “normal” cases of economic slowdowns, companies will pause hiring new employees or even begin layoffs. July’s numbers show the opposite: increased hiring and growing wages – signs that businesses do not expect a prolonged economic downturn.
Wrapping up returns for the first half of the month, all major markets posted solid returns. As of August 15th, the Dow Jones Industrial Average grew by 1,067
points (3.25%), the S&P 500 rose 167 points (4.04%) and the NASDAQ Composite Index shot up 737 points (5.95%).
1,3 www.cnbc.com, “Payrolls increased 528,000 in July, much better than expected in a sign of strength for jobs market” August 5, 2022
2 www.tradingeconomics.com, “United States Unemployment Rate” July 2022 Data – 1948-2021 Historical