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Everyday Economics: Did higher-for-longer interest rates, heat wave cool hiring?

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Despite solid wage growth in May, consumers showed some restraint, and inflation continued to moderate.

The Personal Consumption Expenditures Price Index (PCEPI) remained flat month-over-month, down from 0.3% in April. Core PCEPI eased to 0.1% from 0.3% the previous month.

Year-over-year, core PCE stands at 2.6%, down from a persistent 2.8% over the past three months. In March, the FOMC dot plot projected core inflation, as measured by PCE, to reach just 2.6% for 2024 alongside a 4% unemployment rate. The unemployment rate has already hit 4%, aligning with the forecast, while core PCE is at 2.6% year-over-year.

If this disinflation trend persists, the first Fed rate cut could come before the end of the year as anticipated.

Key figures to watch this week include:

• The Institute for Supply Management will release the Purchasing Managers’ Index (PMI) for manufacturing and services sectors, pivotal leading indicators tracking economic activity. The ISM manufacturing index is expected to remain in contraction, with economists forecasting a potential slowdown in the ISM services index for June.

• Total construction spending for May is anticipated to have declined further, reflecting a decrease in privately-owned housing starts, which fell by 3.8%.

• The highlight of the week will be the Bureau of Labor Statistics Employment Situation report. Forecasts suggest a persistently tight labor market with the unemployment rate expected to hold steady at 4%.

Did the sweltering conditions in June lead to a sharper decline in hiring, with wage growth moderating further? Alternatively, could relaxed financial conditions have spurred the labor market to regain momentum?

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