Economic Update for July, 2023-Inflation, Unemployment and More

Inflation: from the LA Times: Inflation declines sharply to 3% in June By Christopher Rugaber

Squeezed by painfully high prices for two years, Americans have gained some much-needed relief with inflation reaching its lowest point since early 2021 — 3% in June compared with a year earlier — thanks in part to easing prices for gasoline, airline fares, used cars and groceries.

The inflation figure the government reported Wednesday was down sharply from a 4% annual rate in May, though still above the Fed’s 2% target rate. From May to June, overall prices rose 0.2%, up from just 0.1% in the previous month but still comparatively mild.

Even with Wednesday’s better-than-expected inflation data, the Fed is considered all but sure to raise its benchmark rate when it meets in two weeks. But with price increases slowing — or even falling — across a range of goods and services, many economists say they think the central bank could hold off on what had been expected to be another rate hike in September, should inflation continue to cool.

When the Fed began raising its key rate a year ago, many economists expected that unemployment would have to rise significantly to curb inflation. Though inflation isn’t yet fully tamed, some economists say they think it can fall to a level near the Fed’s 2% target earlier than they had expected.

Excluding food and energy prices, which tend to be more volatile, so-called core inflation was lower than economists had expected, with prices rising just 0.2% from May to June, the smallest monthly increase in nearly two years. Year-over-year inflation does remain relatively high, at 4.8%, but is down from a 5.3% annual rate in May.

In just the last two months, overall inflation, measured year over year, has slowed from nearly 5% in April to just 3% now. Much of that progress reflects the fading of spikes in food and energy prices that followed Russia’s invasion of Ukraine last spring. Inflation is now significantly below its peak of 9.1% in June 2022.

Gas prices have fallen to about $3.54 a gallon on average, nationally, down from a $5 peak last year. Grocery prices have leveled off in the last three months and were unchanged from May to June. Milk prices, having dropped for a third straight month, are down 1.9% from last year.

Egg prices, which had soared last year after an outbreak of avian flu, have dropped to $2.22 a dozen — down more than 7% just in the last month. Egg prices had peaked at $4.82 in January, according to government data. Still, they remain above the average pre-pandemic price of about $1.60 a dozen.

Economists say inflation isn’t likely to keep falling at such a rapid pace. On a 12-month basis, inflation could even tick up in the coming months now that big drops in gas prices — they’re down 27% in the last year — have been achieved.

In particular, airfares plunged 8.1% just from May to June, hotel costs 2% and car rental prices 1.4% — sharp drops that aren’t likely to be replicated.

And the cost of some services are still rising and likely to stay high this year, potentially keeping core prices elevated. Auto insurance costs, for instance, have soared, and are up 16.9% from a year ago. Americans are driving more than during the pandemic and causing more accidents. Insurance is also costlier because vehicle prices are much higher than before the pandemic, and cars are therefore more valuable.

Restaurant prices are still moving up, having risen 0.4% from May to June and nearly 8% from a year earlier. Restaurant owners have had to keep raising wages to find and retain workers, and many of them are passing their higher labor costs on to their customers by raising prices.

Federal Reserve Chair Jerome H. Powell and other Fed officials have focused their attention on high inflation for restaurant meals, auto insurance and other items in the economy’s sprawling service sector. It’s a big reason why several Fed policymakers were still talking earlier this week about the likelihood of two more rate hikes.

Some drivers of higher prices are likely to keep fading and pull down inflation in the coming months. Used-car prices sank 0.5% from May to June, after two months of big jumps. New-car prices, too, have begun to ease as a result, and were unchanged from May to June.

In June, used-vehicle prices paid by dealers were down 5.6% from a year earlier, helping to cool inflation, according to data gathered by Black Book, which monitors prices. But used vehicles are still comparatively pricey: Dealers are paying almost 70% more for them than in June 2019, before the pandemic began. The average list price offered by dealers to consumers was $28,850 last month.

Supplies of new vehicles are rising, and prices are dropping slightly. As a global shortage of computer chips wanes, automakers have accelerated production. New-vehicle prices peaked in December but fell 3% to $45,978 last month, according to estimates from J.D. Power.
And rental costs, a huge driver of inflation, are expected to keep declining, as builders continue to complete the most new apartment units in decades. Rising housing costs have driven more than two-thirds of the increase in core inflation in the last year, the government said, so as that increase fades it should steadily lower overall inflation.

Prices first surged two years ago as consumers ramped up their spending on items such as exercise bikes, standing desks and new patio furniture , fueled by three rounds of stimulus checks. The jump in consumer demand overwhelmed supply chains and ignited inflation.
Many economists have suggested that President Biden’s stimulus package in March 2021 intensified the inflation surge. At the same time, though, inflation also jumped overseas, even in countries where much less stimulus was put in place.

Rugaber writes for the Associated Press. AP writer Tom Krisher contributed to this report.

Unemployment: From the New York Times: The U.S. labor market showed signs of continued cooling last month but extended a two-and-a-half-year streak of job growth, the Labor Department said Friday.

U.S. employers added 209,000 jobs, seasonally adjusted, and the unemployment rate fell to 3.6 percent from 3.7 percent in May as joblessness remained near lows not seen in more than half a century.

June was the 30th consecutive month of job growth, but the gain was down from a revised 306,000 in May and was the lowest since the streak began.

Wages, as measured by average hourly earnings for workers, rose 0.4 percent from the previous month and 4.4 percent from June 2022. Those increases matched the May trend but exceeded expectations, a potential point of concern for Federal Reserve officials, who have tried to rein in wages and prices by ratcheting up interest rates.

Still, the response to the report from economists, investors and labor market analysts was generally positive. The resilience of the job market has bolstered hopes that inflation can be brought under control while the economy continues to grow.