The FED guys have been hoping for a clear signal from the economic data for quite a while now in order for them to raise the interest rates, but it never came. We haven´t seen consistent numbers in all sectors of the US economy in a long time. When a certain sector picked up pace, another one slowed down. In fact, we have seen a deterioration of the numbers for most of September.
That´s why the FED decided to make employment the milestone for the next rate hike. Employment has been the only part of the US economy that has been consistent.
Today´s economic data from the US blurred the picture even more. Personal spending and the personal income fell by 0.4% and 0.2% respectively. There are 3 problems with these numbers:
1 – The US consumer isn´t spending, which casts doubt on the positive consumer sentiment numbers we saw last week.
2 – If the consumer keeps holding back, then the US and global economic recovery is in danger. US retail sales continue to be crappy.
3 – The income is not growing fast enough to justify the higher employment and low unemployment.
This last point brings us back to the FED and their decision to use employment as a milestone for the next rate hike. How about unemployment is low because the people are employed, but in low skill and low paid jobs?
On the other hand, the Chicago PMI numbers indicate that the business activity has improved a lot in that state. The consumer sentiment improved again and even beat the expectations, but it is not translating into higher spending and retail sales, so it doesn´t count.
The FED can choose to pick only the positive numbers and turn a blind eye to the negative ones, but today´s data leans on the negative side when you break the numbers down and make the connection to the wider picture of the entire US economy. They have already decided their next move anyway.
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