A Hall & Oates kind of mood

Rock steady

Meeting minutes from the latest Fed meeting effectively reiterated the Fed’s view that even though inflation is coming in higher than they had initially expected, they still see it to be transitory in nature. Before they start raising interest rates, the Fed would ease off on their policies that impact the money supply in the market, and there’s only limited talk about doing even that at the moment. 

Moral of the story: Despite the economic recovery occurring today, the overall tone from this meeting was that conditions haven’t met the “substantial progress” the FOMC is looking for before starting to take their foot of the gas pedal. 

Falling

Weekly unemployment claims increased last week unexpectedly to 373k and the prior week’s number was also revised upward by 7k to 373k. However, continuing claims, which measure those receiving ongoing unemployment benefits, fell to 3.34m, which is the lowest level since March last year. 

Moral of the story: About half the states have ended their expanded unemployment benefits from the pandemic and there are plenty of jobs available for those looking – many employers are even offering meaningful signing bonuses to entice new workers. As all the unemployment benefits associated with COVID start to burn off, the state of the labor market will be much more transparent, especially for the FOMC, who is particularly interested in seeing the labor market regain its footing before easing policies. 

Everywhere I look

The ISM Services Index dropped 3.9 points from May to a 60.1 reading for the month of June. Any reading above 50 indicates an expansionary environment and this is the 13th consecutive month of growth in the services sector. Similar to the phenomenon we saw in the ISM Manufacturing Index last week, the only sub-index that fell below 50 was the one measuring employment, which demonstrated a contractionary environment for the first time in six months. 

Moral of the story: Consumer demand is back to 2019 levels – actually even surpassing those levels – TSA processed more travelers for July 4th weekend this year than they did in 2019 pre-COVID! The same supply chain backups and labor shortages plaguing the manufacturing industry are also impacting the services industry. Until we get some of these issues figured out, unfortunately businesses just won’t be able to meet all the demand that’s out there, which means higher prices for everyone. My go-to nachos at my go-to Mexican spot down the street are now 20% more expensive and I’m not pleased. 

Sign up for the weekly digest