Chief Economist Scott Brown discusses the latest market data.

The Fed updated its monetary policy framework, moving to a flexible average inflation target. That means that the central bank will target an average inflation rate of 2% (as measured by the PCE Price Index) over time. A period of inflation below 2% would be followed by a period of above 2% inflation, but not in a mechanical or mathematical way (judgment remains the key element). According to Fed Chair Powell, that’s not a big change from how policy has been conducted in recent years. The Fed also made its employment goal broader and more inclusive (recognizing that low unemployment greatly benefits low- and medium-income communities).

Real GDP fell at a 31.7% annual rate in the second estimate for 2Q20, vs. -32.9% in the advance estimate. Personal income rose 0.4% in the initial estimate for July (+8.2% y/y), as a 1.4% gain in wages and salaries (-1.1% y/y) offset a 7.2% decline in unemployment benefits (+4,833% y/y). Personal spending rose 1.9% (-2.8% y/y). The PCE Price Index ex-food & energy rose 0.3% in July (+1.0% y/y), up 0.3% ex-food & energy (+1.3% y/y). Durable goods orders jumped 11.2% in July, as a 21.9% increase in orders for motor vehicles more than offset nearly $5 billion in aircraft order cancellations. Ex-transportation, orders rose 2.4%.

Next week, fresh August data begin to arrive, with a focus on Friday’s employment figures. Nonfarm payrolls are expected to rise further, boosted by the hiring of temporary census workers, while the start of the school year may add some noise. The unemployment rate should fall further, partly reflecting a decrease in labor force participation. ISM surveys should be consistent with a moderation in the pace of growth in August (diffusion indices reflect direction, not absolute strength). The Labor Department’s report on jobless claims will shift to additive seasonal adjustment (vs. the previous multiplicative adjustment), which should add about 45,000 to the unadjusted figure (instead of multiplying by 1.22) and make comparisons to previous adjusted figures invalid (as the history won’t be revised).

Indices

  Last Last Week YTD return %
DJIA 28492.27 27739.73 -0.16%
NASDAQ 11625.34 11264.95 29.56%
S&P 500 3484.55 3385.51 7.85%
MSCI EAFE 1902.25 1885.94 -6.61%
Russell 2000 1564.56 1564.30 -6.23%

Consumer Money Rates

  Last 1 year ago
Prime Rate 3.25 5.25
Fed Funds 0.00 2.11
30-year mortgage 2.95 3.56

Currencies

  Last 1 year ago
Dollars per British Pound 1.3201 1.221
Dollars per Euro 1.1822 1.108
Japanese Yen per Dollar 106.57 106.12
Canadian Dollars per Dollar 1.313 1.331
Mexican Peso per Dollar 22.149 20.111

Commodities

  Last 1 year ago
Crude Oil 43.04 55.78
Gold 1932.60 1549.10

Bond Rates

  Last 1 month ago
2-year treasury 0.14 0.11
10-year treasury 0.74 0.53
10-year municipal (TEY) 1.22 1.02