02/02/2024 | Press release | Distributed by Public on 02/02/2024 11:24
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Employment gains were above our expectations in January, and the upward revision to December suggests that it isn't an unusually strong one-off report. While at first glance it looks as though the household survey once again diverged significantly from the payroll survey with a reported loss of 31,000 jobs, this was due entirely to an annual update to the population control measure; removing that effect shows household employment increased by 239,000 over the month. Further, the robust wage growth points to the labor market remaining hot.
Still, the ECI, which provides one of the broadest measures of labor market compensation available, suggested that inflationary pressures from wages cooled in the fourth quarter to an annualized rate that would be broadly consistent with 2-percent inflation given typical levels of productivity growth. Productivity growth has actually been better than typical over the past three quarters, which could explain why economic growth has been able to remain robust while inflation has cooled. Still, productivity is difficult to measure and is prone to large swings from quarter to quarter. While this week's data points to upside risk to our economic growth outlook for 2024, we continue to believe growth will decelerate in 2024.
Other economic data was generally positive this week, with consumer confidence continuing to gain and the ISM manufacturing index indicating the significant contraction in that sector may be over. However, the increase in the prices paid index is concerning and indicates that the recent disruptions to shipping operations in and around the Red Sea may reignite price pressures for some goods. These and other inflationary risks that stem from strong economic growth and a hot labor market are part of the Fed's calculation, and their statement indicated they would need to gain "greater confidence that inflation is moving sustainably toward 2 percent" before lowering rates. As such, we continue to believe that the first cut in the federal funds rate will be in May, though the jobs report and other economic data add some risk that policy easing will ultimately begin later in the year.
Economic and Strategic Research Group
February 2, 2024
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.