AUGUST ECONOMIC REPORT

August 30th, 2023 - 10:00am

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August 31st, 7-8pm

Powers College of Business Room #201

Monthly Minute

Heading into August, the US Federal Reserve and the European Central Bank hiked interest rates to a 22 and 23-year high, respectively. Stocks continued to rally in July despite high inflation and soaring interest rates. This month has been a slightly different story with 1) China struggling to recover from zero COVID policy. 2) High treasury yields due to Fed rate hikes, contributing to a 2% dip in the major US indices that seems to continue to climb off monthly lows this morning. 

While we do not appear close to a recession, everything is up in the air. Labor demand must catch up to Labor supply for us to reverse our recession call. 

Month Breakdown

First Week of August

• Fitch, a global credit rating agency, downgraded US government debt. 

  • “[The] repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.” 

  • Uncontrolled US spending and debt endangers the elderly, as they rely on government programs like Medicare and Social Security.

  • We have two choices: cut spending or raise taxes.

• BLS Reported cooling but continued job growth in July.

  • June 209,000-> July 187,000 new jobs. The Fed will take this into account when deciding whether or not to increase rates at their next meeting.

Week of August 7

• All about China. 

  • The impact of zero COVID policies has stunned the Chinese economy. 

  • With a sudden drop in inflation, Chinese citizens can save more, which is not ideal in a crumbling economy where stimulus is needed. 

  • Chinese data showed imports and exports falling 14.5% year-over-year in July.

• US inflation slows, and the economy continues to grow. Precisely what the Fed wants to see.

Week of August 14

• Fed sends conflicting messages in Jackson Hole speech, teasing future rate hikes.

• Spend-happy government officials mixed with tight monetary policy is tough to balance.

Week of August 21

• We believe the Fed can pause the rate hikes in September.

• Watch for: Labor data to be released over next few months for Fed to alter course.

• Watch for: Policy and Credit Tightening & sticky inflation.

Currie’s Call:

Two things have solidified in my mind this month. One is that inflation is staying sticky long term, and the other being the lagging effects of both fiscal and monetary policy. Labor supply must catch up to Labor demand to encourage the Fed to begin cutting rates. Interest rates staying high for an extended period of time will be a drag on investment.

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