Policy Backgrounders

The Weekly Round-Up: Developments on the Economy (September 30, 2022)

September 30, 2022

CED & ESF ECONOMIC and POLICY BRIEF

The Weekly Round-Up:

Developments on the Economy

September 30, 2022

This week CEOs and financial markets received mixed news about the outlook for the US economy. 

The August Personal Income & Outlays data showed an economy that continues to grapple with inflation. Core inflation, which excludes volatile food and energy prices, accelerated for the month, suggesting that inflation is becoming more embedded in the economy. This data will likely encourage the Fed to continue to make large interest rate hikes over the coming months.

Relatedly, the labor market remains red-hot. Initial claims for unemployment insurance, a weekly indicator of labor market health, fell to the lowest level since April. Claims had risen over the summer but have been falling since July. Next Friday’s job report will offer a more comprehensive assessment of the labor market and will be examined closely by the Fed.

Meanwhile, durable goods orders declined for the second consecutive month in August, according to the Census Bureau. Excluding defense, the decline in orders was 0.9 percent. These data portend softer demand in the future.

Finally, The Conference Board Consumer Confidence Index® increased in September for the second consecutive month. The improvement was supported by jobs, wages, and declining gas prices. Importantly, concerns about inflation dissipated further in September—prompted largely by declining prices at the gas pump—and are now at their lowest level since the start of the year.

For more information on these and other events, please see below:

1. AUGUST PERSONAL INCOME & OUTLAYS DATA CONCERNING

2. CONTINUING RESOLUTION TO AVOID GOVERNMENT SHUTDOWN

3. DURABLE GOODS ORDERS DECLINE SLIGHTLY IN AUGUST

4. THE CONFERENCE BOARD SURVEY SHOWS RISING CONSUMER CONFIDENCE

5. SECOND QUARTER REAL GDP DECLINED 0.6 PERCENT, UNCHANGED IN REVISIONS

6. WEEKLY UNEMPLOYMENT INSURANCE CLAIMS FALL BELOW 200,000

7. DOT APPROVES STATE ELECTRIC VEHICLE CHARGING NETWORKS PLANS

8. POWELL CALLS FOR BETTER DIGITAL FINANCE REGULATION

9. MONKEYPOX UPDATES

1. AUGUST PERSONAL INCOME & OUTLAYS DATA CONCERNING

August Personal Income & Outlays data show an economy that continues to grapple with inflation. Core Personal Consumption Expenditure (PCE) inflation, which excludes volatile energy and food prices, accelerated in August suggesting that inflation is becoming more embedded in the economy. According to the Bureau of Economic Analysis (BEA), much of the gains recorded in personal income in recent months have been undercut by rising prices. Furthermore, increases in consumer spending are weaker when the data are adjusted for inflation. These August data will likely encourage the Fed to continue to make large increases to interest rates over the coming months. The stubbornness in core inflation paired with recent Fed guidance suggests that there is mounting downside risk to The Conference Board’s forecast of a brief and mild US recession.

Read the TCB Economics, Strategy and Finance Center’s Insights on the CPI here.

2. CONTINUING RESOLUTION TO AVOID GOVERNMENT SHUTDOWN

The Senate voted for a Continuing Resolution (CR), the “Continuing Appropriations and Ukraine Supplemental Appropriations Act, 2023,” on which the House is expected to vote Friday, before the expiration of the fiscal year on September 30. If Congress does not act, a partial government shutdown would begin on Saturday. The CR “[a]ppropriates funding at the levels and under the conditions provided in fiscal year 2022 appropriations acts” through December 16, 2022, for virtually all programs, including mandatory spending and entitlement programs. The CR advanced after a section on permitting reform included at the insistence of Senator Joe Manchin (D-WV)—including language explicitly approving the Mountain Valley Pipeline in West Virginia—was dropped from the bill after several Senate Democrats announced opposition—dooming a bill that requires 60 votes to advance. (For more information on this, please see the Policy Brief that CED released earlier this week.)

Additional funding for hurricane relief? Beyond this, given that Hurricane Ian may be “the deadliest in Florida’s history,” likely with damages in the tens of billions of dollars, it is reasonable to suppose that a December CR would also include additional funding for hurricane relief, because relief for Ian will likely use a great deal of the Federal Emergency Management Agency’s current reserves. The President has already approved a disaster declaration for Florida, permitting FEMA to respond.

3. DURABLE GOODS ORDERS DECLINE SLIGHTLY IN AUGUST

Manufactured durable goods orders declined in August, according to data released by the Census Bureau on Tuesday, falling $0.6 billion, or 0.2 percent to $272.7 billion. This was the second consecutive month of small declines. Manufactured durable goods orders are often considered a leading indicator of the broader economy. Excluding defense (which tends not to be as cyclical as private-sector spending) the decline in orders was 0.9 percent. Transportation equipment, a large category of manufactured durable goods, fell $1.0 billion to $92.0 billion, driving the decrease. Shipments of manufactured goods increased in August by $2.0 billion, with transportation equipment (up $1.7 billion) leading the increase, suggesting that suppliers are becoming more able to meet demand.

4. THE CONFERENCE BOARD SURVEY SHOWS RISING CONSUMER CONFIDENCE

The Conference Board Consumer Confidence Index® increased in September for the second consecutive month. The Index now stands at 108.0 (1985=100), up from 103.6 in August. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—rose to 149.6 from 145.3 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—increased to 80.3 from 75.8. “Consumer confidence improved in September for the second consecutive month supported in particular by jobs, wages, and declining gas prices,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index rose again, after declining from April through July. The Expectations Index also improved from summer lows, but recession risks nonetheless persist. Concerns about inflation dissipated further in September—prompted largely by declining prices at the gas pump—and are now at their lowest level since the start of the year.”

5. SECOND QUARTER REAL GDP DECLINED 0.6 PERCENT, UNCHANGED IN REVISIONS

Real GDP declined at an annualized rate of 0.6 percent in the second quarter according to the Bureau of Economic Analysis’s most recent estimate, published Thursday. The BEA revises GDP figures as more complete source data becomes available. Though the headline figure of negative 0.6 percent remained unchanged in revisions, there were changes to the BEA’s estimates of components of GDP. Exports were revised downward, while personal consumption was revised higher. The key drivers of lower GDP were reduced construction, which contributed -0.8 percentage points to GDP growth, and nondurable goods manufacturing, which contributed -0.7 percentage points. However, these effects were offset by higher spending on services. Health care and social assistance contributed 0.3 percentage points, professional services another 0.3 percent, and accommodation and food services 0.2 percent.

6. WEEKLY UNEMPLOYMENT INSURANCE CLAIMS FALL BELOW 200,000

The Department of Labor reported Thursday that initial claims for unemployment insurance, a weekly indicator of labor market health, fell to 193,000 for the week ending September 24. This was the lowest figure since April, reflecting a large decrease of 16,000 from the prior week’s revised level of 209,000, and an even larger decrease of 20,000 from the prior week’s initially reported level of 213,000. Claims had risen over the summer, reaching a high of 261,000 in July but have been falling since. Thursday’s figure is similar to the numbers seen in the US just prior to the beginning of the COVID-19 pandemic; for example, the week ending March 7, 2020, saw initial claims of 186,000.

7. DOT APPROVES STATE ELECTRIC VEHICLE CHARGING NETWORKS PLANS

The Department of Transportation announced on Tuesday that it had approved the Electric Vehicle Deployment Plans for all 50 states plus the District of Columbia and Puerto Rico, a requirement for states to receive funding for the National Electric Vehicle Infrastructure (NEVI) program. The Infrastructure Investment and Jobs Act offered formula funding for five fiscal years (2022 through 2026) in the program. States will have access to both 2022 and 2023 funding, totaling about $1.5 billion of the $5 billion five-year total. NEVI formula funding can be used for a variety of purposes, including to upgrade existing EV charging infrastructure, construct new infrastructure, operate, or maintain that infrastructure.

8. POWELL CALLS FOR BETTER DIGITAL FINANCE REGULATION

In remarks at an event organized by the Banque de France, Federal Reserve Chair Jerome Powell reiterated a call for regulation of cryptocurrencies and decentralized finance (DeFi.) He noted that a lack of transparency gives rise to “significant structural issues” but noted that “from a financial stability standpoint, the interaction between the DeFi ecosystem and the traditional banking system and [the] traditional financial system is not that large at this point [.]”. But he warned “that situation will not persist indefinitely,” and stated that as the system grows and “starts to touch more retail customers,” there would be greater need for “same risk, same regulation” wherever transactions take place. Though the Fed has researched the possibility of a US digital currency, Powell would require “a specific authorizing law” to move forward. Regarding “stablecoins,” which are pegged to conventional currencies such as the US dollar, Powell noted that “If you're going to have private money creation across the country, really there needs to be a federal role...we think it really should be the Fed that does play that role. That's our principal focus right now [.]”

9. MONKEYPOX UPDATES

As of September 26, the US has confirmed a total of 25,162 cases of monkeypox. States with the highest case numbers include California (4,886), New York (3,881), Florida (2,455), Texas (2,268), and Georgia 1,764). Globally, 65,933 cases have been confirmed, with 65,353 cases confirmed in locations that have not historically reported monkeypox. The countries with the highest case numbers include the US (25,161), Brazil (7,300), Spain (7,083), France (3,970), and Germany (3,601). A total of twelve deaths have been reported in locations that have not historically reported monkeypox.

Nearly four months since the first reported case of monkeypox in the US, the spreading of the virus is slowing and supplies of the vaccine have improved, but concerns remain. JYNNEOS is the only vaccine that is FDA-approved for the prevention of monkeypox disease, but recent reports suggest that it may not be protective enough to prevent both disease and viral spread entirely. The recent decline is most likely the result of a combination of vaccinations, immunity gained from infection in the population most at risk, and a change in behavior in this group, said Dr. Demetre Daskalakis, the deputy coordinator of the White House’s monkeypox response. However, CDC also announced on Wednesday that even a single dose of the vaccine provided significant protection against becoming sick for at-risk populations, providing “a level of cautious optimism that the vaccine is working as intended,” CDC Director Rochelle Walensky said. Unvaccinated men between 18 and 49 were 14 times more likely to become infected with monkeypox as those who had one dose of vaccine at least two weeks earlier. CDC reiterated its guidance in favor of a second dose of monkeypox vaccine for those at risk.