One of the things I enjoy most is getting out and engaging with clients in different parts of the country. It gives me a better sense of what’s on the minds of people who don’t spend their days watching markets and economic data. In other words, it provides a valuable perspective from “Main Street.”
Last week took me to Denver, which meant I wasn’t able to provide my usual video update. This week I’m heading to Atlanta to visit with clients, but I’ll be back with a video next week. In the meantime, here’s a quick update on what I’m watching.
The biggest news last week came from the labor market. The August jobs report showed the economy added 162,000 jobs, while the unemployment rate held steady at 4.1%. Perhaps just as encouraging, previous estimates for June and July were revised higher by a combined 55,000 jobs.
Another important detail was the labor force participation rate, which rose to 61.6%. That measures the percentage of working-age Americans who are either employed or actively looking for work. Why does that matter? When more people enter the workforce, it can temporarily push the unemployment rate higher simply because there are more people looking for jobs. Instead, unemployment held steady even as participation increased, a sign that the labor market continues to absorb new workers reasonably well.
The message for investors is that the labor market remains on healthy footing. While the Trump Administration has pointed to the latest jobs report as evidence of the economy’s strength and as supporting the case for lower interest rates, another interpretation is that it gives the Federal Reserve room to remain focused on inflation. A resilient labor market means the economy may be better positioned to withstand tighter monetary policy if the Fed believes another rate increase is necessary.
That brings us to this week.
We’ll receive the August Producer Price Index on Thursday and Consumer Price Index on Friday, two important reads on inflation ahead of the Fed’s September 15-16 meeting. Recent inflation readings have been relatively softer, including a flat PPI and a 0.1% monthly increase in CPI in July.
This time, however, energy prices could complicate the picture. Renewed U.S.-Iran hostilities and disruptions around the Strait of Hormuz have pushed WTI crude above $90 and Brent toward $100 per barrel.
A hotter-than-expected inflation report combined with continued labor-market strength would strengthen the case of the Fed’s more hawkish members, meaning those who favor higher interest rates when necessary to contain inflation. Three FOMC members already preferred a quarter-point rate increase at the July meeting.
That makes this week’s inflation reports especially important. I’ll be watching closely and will be back next week to discuss what they could mean for the Fed, markets, and portfolios.
Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA®), a CERTIFIED FINANCIAL PLANNER™ (CFP®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.
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