“We do not seek or welcome further cooling in labor market conditions.†– Jay Powell

Federal Reserve Chairman Powell declared in his Jackson Hole address that “the time has come for policy to adjust.†Also last week PMI data showed overall growth in August in spite of Manufacturing weakness. The Bureau of Labor Statistics revised recent job growth lower by -818k jobs. The Conference Board Leading Economic Index continues to signal elevated economic risks.

The S&P Global Flash August PMI data (August 22) showed a mixed economy in which the Services sector growth remained strong, accelerating from July. Manufacturing, however, fell to an 8-month low. S&P Chief Business Economist noted, “the solid growth picture in August points to robust GDP growth in excess of 2% annualized in the third quarter, which should help allay near-term recession fears. Similarly, the fall in selling price inflation to a level close to the pre-pandemic average signals a ‘normalization’ of inflation and adds to the case for lower interest rates.â€

The report further commented (my emphasis), “this ‘soft-landing’ scenario looks less convincing, however, when you scratch beneath the surface of the headline numbers. Growth has become increasingly dependent on the service sector as manufacturing, which often leads the economic cycle, has fallen into decline. The manufacturing sector’s forward-looking orders-to inventory ratio has fallen to one of the lowest levels since the global financial crisis.â€

I have been writing about the extreme statistical divergence between monthly employments surveys conducted by the BLS. Some of this disconnect came through with the preliminary benchmarking revisions (August 21) which found -819K fewer private sector jobs had been created than was previously reported.

Finally, The Conference Board July Leading Economic Index (August 19) fell again. The underlying economic weakness was highlighted in the report which noted, “in July, weakness was widespread among non-financial components. A sharp deterioration in new orders, persistently weak consumer expectations of business conditions, and softer building permits and hours worked in manufacturing drove the decline, together with the still-negative yield spread. These data continue to suggest headwinds in economic growth going forward.â€

The next Weekly Review & Outlook will be September 16