Evening Brief – 08.30.23
Downshift to Growth, Soft Labor Markets
The Bureau of Economic Analysis (BEA) revised U.S. Q2 GDP growth to 2.1% annualized, down from 2.4% previously and weaker than the +2.4% consensus. The Q2 rate of growth is almost the same as the 2% rate in Q1 2023.
The revision, according to the BEA, “reflected a smaller decrease in inventory investment and an acceleration in business investment. These movements were partly offset by a downturn in exports and deceleration in consumer spending and federal government spending.”
Gross domestic purchasing prices, or the prices of goods and services, increased 1.7% in the second quarter after gaining 3.8% in the first, exceeding the 1.6% projection last month but falling short of the consensus 1.8%. Prices increased 2.4% after jumping 4.2%, excluding food and energy.
Personal consumption expenditure (PCE), a Fed favorite, grew 2.5% in the second quarter after climbing 4.1% in the first quarter. The PCE “core” price index, excluding food and energy, grew 3.7% after growing 4.9%. This figure was likewise lowered from 3.8% and fell short of expectations of 3.8%.
The BEA also revealed that corporate profits fell 0.4% in the second quarter after falling 4.1% in the first quarter. Domestic financial corporation profits fell 12.1% after falling 2.3%.
All this contrasts sharply with the rebound in corporate profits reported by firms in their different GAAP and non-GAAP metrics.
Separately, after the JOLTS data revealed weaknesses in the labor market on Tuesday, analysts predicted a significant slowdown in ADP’s employment report (from +324k the previous month to +195k this month). The number was lower than projected, adding only 177k, the lowest number since March and indicating a labor market cooling in the face of rising interest rates.
“This month’s numbers are consistent with the pace of job creation before the pandemic,” said Nela Richardson, chief economist, ADP. “After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.”
ADP data also revealed that pay growth slowed substantially in August, which could be an encouraging sign for the Fed as it strives to keep inflation under control. Job holders got a 5.9% year-over-year salary increase, the smallest since October 2021. Pay growth for job changers slowed to 9.5%.