All posts by joel

August ADP Jobs Estimate, Help Wanted Online and Revised 2nd Quarter Productivity

KEY DATA: ADP: +190,000/ HWOL: +34,200/ Productivity: +3.3%; Unit Labor Costs: -1.4%

IN A NUTSHELL: “Businesses are still hiring, but it is not clear if Friday’s jobs report will give the Fed either an “all-clear” or a “let’s go slow” signal.”

WHAT IT MEANS: Yesterday, I commented that I hoped the jobs report would be strong enough that the Fed would have all the cover it needed to start raising rates. The one thing I didn’t want was a mezza mezza report that left everyone in Neverland. Well, if you look at today’s employment related data, it is likely Friday’s employment report could be not too hot or not too cold, which would make it not just right. ADP’s monthly estimate of private sector August job gains was a little less than expected. It points to a decent, but not great report. Ugh! Construction firms ramped up but manufacturers added positions at a more moderate pace. Looking across company size, there was decent gain in small and mid-size companies but large firms didn’t hold up their end of the bargain. The 500,000 to 1,000,000 employee group continues to disappoint. It is the only one of the major size divisions that hasn’t regained all the jobs lost to the Great Recession. I guess that is not the sweet spot to be in, but I don’t know why.

Looking forward, the Conference Board reported a decent but not great rise in the number of online help wanted ads. After cratering in June, there has been a steady rebound, but online ads are still below the May total. Taken together, the ADP and Conference Board’s reports show an economy that is adding jobs at a pace similar to what we have seen for most of this year.

Business productivity soared in the second quarter and labor costs declined sharply. The huge upward revision to second quarter GDP drove the improvement from the initial estimates, which showed rising labor costs. But these data are very volatile and looking at the change from second quarter 2014, productivity remains weak while labor costs are rising.

MARKETS AND FED POLICY IMPLICATIONS: Today’s reports really didn’t provide either Fed members or analysts with any reason to change their thinking on a September rate hike. Friday will come soon enough but right now, it doesn’t look like Fridays jobs numbers will be a game-changer. The numbers may have to be viewed with some caution, as the late Labor Day weekend could influence the seasonal adjustments. Investors may have to wander in the wasteland created by Fed bickering and dithering. The members are struggling with the communication process so I have a suggestion: Make the change in October when there is no press conference and no chance of further confusing everyone. Just kidding – I think. As for the equity markets, was anyone aware of how far the Shanghai index rose? It was up by over 130% in nine months. Even with the recent collapse in prices, it is still up 40% over the year. Should we be worried about a market that has posted a 40% gain in a year or should we have been screaming there was a bubble that had to burst when prices skyrocketed? I like to talk about efficient markets being irrational. That is a case in point. Keep that in mind as you watch your investments bounce around like yo-yos.

August Supply Managers’ Manufacturing Index and July Construction and Home Prices

KEY DATA: ISM (Manufacturing): -1.6 points; Orders: -4.8 points/ Construction: +0.7%; Private: +1.3%/ Home Prices (monthly): 1.7%; Year-over-Year: +6.9%

IN A NUTSHELL: “A deceleration in the manufacturing sector points to slower growth in the third quarter even as housing, construction and vehicle sales remain strong.”

WHAT IT MEANS: The economy’s yin and yang can be clearly seen in today’s data. On the dark side, the Institute for Supply Management reported that manufacturing activity continued to moderate in August. Growth continued, but it wasn’t particularly fast. What concerned me the most was the sharp deceleration in orders. The index hit its lowest reading in over two years. Export demand continues to fade as well, highlighting the problems created by a strong dollar and questionable Chinese growth. Hiring also moderated, but that component has not been really strong for a while. About the only good news in the report was that order books thinned at a slower pace. However, backlogs continued to drop.

While manufacturing seems to be having issues, other portions of the economy are still strong. Construction boomed in July on top of a robust June gain. Both private residential and nonresidential building activity boomed during the summer. Indeed, there were increases in almost every sector, interestingly, including manufacturing. Since July 2014, private sector construction was up nearly 17%.

The sharp rise in residential construction is being matched by strong increases in home prices. CoreLogic reported a robust gain in July not just over the month but also since July 2014. Price gains are once again accelerating, a sure sign of housing market strength.

MARKETS AND FED POLICY IMPLICATIONS: Investors are trying to make some sense of the Chinese economic data but until we have confidence that the data are anything more than trend indicators, we will not know how hard a slowdown China is facing. Hopefully, investors will now recognize what most of us have known but been unwilling to admit: The Chinese data are questionable given the difficulty to collect data accurately in a country that large and underdeveloped and the political needs of the government. So take anything that comes out with a bucketful of salt. Uncertainty about data for the second largest economy in the world cannot be good for the markets. Yet the U.S. economy continues to move forward. Manufacturing is slowing, but domestic demand remains strong. Indeed, it looks like August vehicle sales pace could come in at a better than expect 17.4 million sales pace. With families buying houses as well, we should see an upturn in the demand for manufacturing goods that go into building those products. The U.S. economy can sustain a solid growth rate unless the situation in Asia is a lot worse than expected. Investors need to separate the international companies from the domestic ones. And the Fed has to recognize that stock price changes and the domestic economy are not one in the same. Unlike the 1990s, when irrational exuberance reigned, households are not reacting rapidly to changes in wealth. They know better, sadly. Friday we get the jobs report and hopefully it is clear-cut. We need something that sets the tone and I am hoping for an unambiguously strong one so the Fed has cover to raise rates. I believe they should do that right away.

July Consumer Spending and Income and August Consumer Sentiment

KEY DATA: Consumption: +0.3%; Disposable Income: +0.5%; Inflation: 0.1%/ Sentiment: -1.2 points

IN A NUTSHELL: “Consumers continue to spend and inflation continues to be well contained; so what else is new?”

WHAT IT MEANS: The more data we get, the more we learn what we already know: The U.S. economy is in good shape but inflation remains below the Fed’s desired target rate. In other words, the Fed’s conundrum continues unabated. Household spending rose decently in July, even when you adjust it for inflation. We knew the gain would be solid since vehicle sales rebounded from a June slump. Inflation-adjusted consumption of nondurables and services improved modestly. The key services component, which constitutes about 45% of the entire economy, is up by a very good 2.8% over the year, adjusting for inflation. Consumers are not just out there borrowing money to purchase big-ticket items, they are buying everything. Can they keep it up? Yes! Income grew strongly in July as wage and salary gains improved. It appears that worker compensation is accelerating. That is critical to maintaining a near-3% growth rate. If household incomes keep ramping up, the strong spending pace we have been seeing should be maintained since balance sheets are in much better shape. While the Fed members should feel good about the economy, they will likely remain uneasy, queasy about inflation. Prices rose modestly, both overall and excluding food and energy. Over the year, the inflation rate has decelerated a touch recently. That is not a trend the FOMC wants to see.

One question being raised is whether the stock market wild ride will harm consumer confidence and spending. For now, the answer is unclear. The University of Michigan’s Consumer Sentiment Index eased a touch in August. The stock market volatility period constituted only a small portion of the survey period. Confidence changes that result from short-term market price volatility don’t necessarily lead to alterations in spending patterns. The September Mid-month sentiment snapshot comes out before the next FOMC meeting, and that will matter more.

MARKETS AND FED POLICY IMPLICATIONS: It is getting tiresome constantly talking about what the Fed will or will not do in September or even this year. That alone says the Fed has messed up its communications policy really badly. The Committee keeps trying to provide better information but the more they change the strategy, the more they don’t clarify things. Saying they are data dependent sounds good, but when analysts can change their outlook dramatically on a couple of days of stock market volatility (one large institution went from September to next March!), that doesn’t tell me the Fed’s signaling system is getting the job done. Waiting for Godot can be tiresome and I really don’t enjoy sitting around saying basically the same thing over and over again. Which I continue to do. Unfortunately, my writing will never be compared to Samuel Beckett’s. In any event, repeating what I keep saying, the U.S. economy is in very good shape, inflation is low and the Fed is perplexed – or afraid of making a mistake – or whatever. September 17th cannot come soon enough for me.

July Consumer Price Index and Real Earnings

KEY DATA: CPI: +0.1%; Excluding Food and Energy: +0.1%/ Real Hourly Earnings (Monthly): 0.1%; Real Weekly Earnings (Monthly): +0.4%

IN A NUTSHELL: “The Fed has to decide if modest inflation is good enough.”

WHAT IT MEANS: The slow water torture the Fed is putting us through continues unabated and it would be nice if the economic data helped stop the pain. No chance. The Fed has a dual mandate and while the economy is good enough to raise rates, inflation remains well below target levels. Today’s July Consumer Price Index report does nothing to change that picture. Prices rose minimally and that included energy and food. That is, you can exclude energy or food and energy, and there was just a modest rise in consumer costs. Interestingly, the Bureau of Labor Statistic has gasoline prices rising solidly in July but the Energy Information Agency has gasoline costs down a touch. What the government’s left hand is posting has little to do what the right hand is presenting. Regardless, there remains a clear demarcation between goods inflation and services inflation. Since July 2014, commodity prices, which are about 38% of the index, were down 3%. Energy commodity costs dropped over 22% over the year. Meanwhile, the services component, the larger portion of the index, was up 2.2%. Shelter, especially rent, is rising sharply. As for the specific categories, medical care costs, both services and commodities, is rising faster than most other areas. Food price pressures are increasing and it is not just eggs. New vehicle prices are up but used are down. The high demand for new vehicles is putting a lot of used vehicles on the market. Clothing prices rose in July, but that was probably an aberration as they are down over the year. Basically, consumer price pressures exist, but they are not great and are concentrated in services, where there is less volatility than in the commodities segment.

With prices up modestly but hourly and weekly earnings up more solidly, real earnings rose. Workers are seeing gains in pay, but more of it is coming from longer hours worked rather than higher hourly wages.

MARKETS AND FED POLICY IMPLICATIONS: The battle between the Fed’s growth mandate and the inflation mandate continues unabated. Under normal circumstances, the Fed would simply wait until inflation starts approaching its target rate before raising rates. But this is not a normal situation. Rates are well below “normal” levels and it is no longer clear that the low level of rates is doing more good than harm. The argument du jour against a rate hike, which is likely to be just ¼ percentage point, is that it would cause the dollar to skyrocket, killing tourism and wrecking the junk bond market. Huh? I guess since people have thrown just about everything else against the wall, those worried that a Fed mini-move would cause the world as we know it to collapse, have to come up with even more bizarre rationalizations to argue against a rate hike. All these excuses are the best arguments to raise rates. Perceptions of what are high rates have been so totally warped that the Fed is playing catch up. It’s time to act, if only to bring some semblance of normalcy back into the fixed income markets.

July Housing Starts and Permits

KEY DATA: Starts: +0.2%; 1-Family: +12.8%; Multi-Family: -17%; Permits: -16.3%; 1-Family: -1.9%; Multi-Family: -31.8%

IN A NUTSHELL: “Housing continues to steadily improve, reinforcing the view that the economy is in good shape.”

WHAT IT MEANS: The housing market is a leading light of the economy and it looks like that will be the case for a while. Home construction edged up in July to a level not seen since the fall of 2007. Single-family activity also returned to late 2007 levels. While those may not be quite where we would like them to be, the steady progress in a sign that this housing recovery is not being hyped by artificial factors. There was a major fall-off in multi-family construction but this is a very volatile segment of the market. Looking forward, the rise in starts should be sustained, though don’t look for a huge increase. Permit requests tanked in July but that came after a spike in June. Over the past three months, permit requests have been running over 6% faster than starts, so even with the July decline in permit purchases, builders have to get going if they are to use up all the permits they have stashed away.

Adding to the expectation that housing will add to growth in the future was yesterday’s report by the National Association of Homebuilders that their index of builder optimism hit its highest level since November 2005. Builders are confident about the future and they are backing that up by actually doing what they are supposed to do: Build!

MARKETS AND FED POLICY IMPLICATIONS: For the most part, the recent data have been pointing to solid growth this quarter. Yes, yesterday’s Empire State Manufacturing Index did tank, but it is hard to understand how confidence could rise but activity collapse. We have had some bizarre moves in the confidence reports lately and I am not sure why. Consumer optimism tanked in July, if you believe the Conference Board, but why people suddenly started feeling sullen is anyone’s guess. Some regional manufacturing indices fell, yet industrial production surged. So you tell me what is going on with that data and we will both know. My take is the economy is moving forward solidly. We may not get two growth rates above 4% as we did last year, but second half growth should exceed 3%. That would mean solid job gains and decline in the unemployment to 5% or less by the end of the year. In other words, the economic numbers should support a Fed rate hike. The FOMC is not likely to change its timing because of the strong dollar. Yes, every company that reports weak earnings is blaming the dollar, but that is a foreign earnings issue, not a domestic economic problem. There is no reason to change policy because of a currency translation issue. Once we get the August jobs report, the Fed members will have to get serious with their signals about a September rate hike. As for the markets, oil prices and the dollar, rather than fundamental economic data, seem to be driving daily action. But over the remainder of the year, investors should not fear the Fed. A rate hike would signal that even this group of worrywarts thinks the economy is in good shape and that would send a strong, positive message. But as I like to say, markets are efficient but not necessarily rational.

July Industrial Production and Producer Prices

KEY DATA: IP: +0.6%; Manufacturing: +0.8%/ PPI: +0.2%; Goods: -0.1%; Services: +0.4%; Excluding Energy: +0.3%

IN A NUTSHELL: “With the vehicle makers leading the way, the manufacturing sector is ramping up even as costs are moderating.”

WHAT IT MEANS: Despite some decent consumer spending, the manufacturing sector had been lagging. Not anymore. Industrial production soared in July as the vehicle sector decided to start ramping up output to meet the high sales pace. Assembly rates jumped by nearly 16%, to its highest level in over 35 years. But it wasn’t just automakers who saw the need to increase output: Eight of the eleven durable goods sectors and six of the eight nondurables posted gains. Whether it was business equipment, consumer goods, construction supplies or high tech products, the need to run the factory longer and faster was seen. The really weak area, not surprisingly, was petroleum. Clothing production also took a big hit and with the dollar rising, that could continue to be a problem area. Capacity utilization rose sharply, but it is not high by any means.

On the wholesale cost side, prices rose, but less than they did in May and June. The restraining factor was energy and the decline in costs is likely to accelerate given the recent drop in crude prices. Excluding energy, prices rose moderately and taking out food, costs also ticked up, though modestly. Still, even on the goods side, finished consumer goods less food and energy were up a solid 2.9% over the year. That is important to note because the major portion of the cost pressures, to what extent they exist, is coming from services. We forget about this component but it is nearly two-thirds of producer costs. Services expenses rose solidly and no major sector posted a decline. Trade, transportation, warehousing and government services all posted gains. This portion of the economy should provide a base for inflation.

MARKETS AND FED POLICY IMPLICATIONS: It would be nice if the two components of the Fed’s dual mandate were behaving consistently, but that is not happening. If you just look at the domestic economy, everything is hunky-dory (that’s a technical economic term). But on the inflation front, the falling price of petroleum and the rising value of the dollar are putting downward pressure on prices. What will the FOMC consider most important? If we look at their words, the Fed members view low inflation as a medium term issue, not an immediate problem. Thus, they are saying they can be patient, as long as expectations remain stable, which they are. Consequently, we should continue to focus on the real economy and the data imply it is strong enough to absorb a rate hike. Meanwhile, back in the markets, the wild ride is likely to continue until some semblance of order returns to the oil and currency markets. With traders worried about the issue of the day and the earnings number of moment, a longer-term viewpoint of stocks based on economic trends is not likely to dominate behavior.

July Retail Sales, Import and Export Prices and Weekly Jobless Claims

KEY DATA: Sales: +0.6%; Excluding Vehicles: +0.4%/ Imports: -0.9%; Nonfuel: -0.3%; Exports: -0.2%; Farm: +0.8%/ Claims: +5,000

IN A NUTSHELL: “With consumers spending and the labor market really tight, the only thing that could keep the Fed from raising rates is the weakness in prices.”

WHAT IT MEANS: If all the Fed worried about was the domestic economy, there would be no worries at all. Retail sales were strong in July, led by robust vehicle demand. There were also decent gains for firms that sold furniture, building supplies, health care products, sporting goods, clothing and gasoline. The gasoline sales rise occurred despite a modest price decline, indicating people are driving more. People also ate out more and shopped online heavily. However, electronic and appliance purchases were off and people didn’t do much buying at department stores. So-called “core” sales, which better mirror the GDP consumption number, were up a solid 0.3%. There was also a sharp upward revision to June retail activity. Second quarter consumption looks like it was better than initially believed.

As for the labor market, the rise in unemployment claims was really modest. More importantly, the level remains extremely low, implying that firms are simply not laying off workers.

While the economy and labor markets are strong, the Fed’s other mandate, inflation, looks like it is not going in the right direction. It may seem strange that the Fed wants higher inflation, but that is because it is well below its target. The July import price report indicates inflation pressures are limited. Declining energy costs played a role in the fall in import costs but there was also a drop in consumer and capital goods prices. Vehicle costs were stable. Export prices fell, but the reeling farm sector was able to push through some price increases.

MARKETS AND FED POLICY IMPLICATIONS: The economy is strong enough to absorb a rate hike, especially since the increase is expected to be modest. Why anyone thinks a quarter point rise in short-term interest rates would hurt the economy is beyond my understanding. But there is inflation, which the Fed continues to argue will get back to normal rates over the next year or two. The Chinese currency devaluation should put downward pressure on prices. Let’s face it, the Chinese want to dump cheap goods onto the U.S. market to keep their economy from failing. The U.S. consumer is the target in this trade war. It is uncertain, though, who is hurt by the Chinese actions. U.S. consumers get lower cost goods but that might displace goods made in either the U.S. or other countries. To the extent that the Chinese action hurts other countries that export to the U.S., those countries will depreciate their currencies so they can remain competitive. But domestic firms cannot change their currency so there is a possibility of slower U.S. growth. Will the Fed put off raising rates because the Chinese action may lower inflation? I said this before and I will say it again: If the Fed doesn’t hike rates because the dollar may rise in value because of currency manipulation, the message sent is that the Fed can also be manipulated.

June Job Openings and Labor Turnover

KEY DATA: Openings: -108,000; Hires: +117,000; Quits: +18,000

IN A NUTSHELL: “Hiring is improving and that is cutting into job openings.

WHAT IT MEANS: The JOLTS report is one of the most closely watched releases that we get each month as it provides insights into the availability of positions and the willingness of firms to fill those openings. In June, firms picked up the pace of hiring, which is good news. Indeed, there was a 7.4% rise over the year, which is robust. That pace was rarely seen in the last expansion and is a clear indication the labor market is solid. With payroll gains improving, the number of job openings eased. Smoothing the monthly ups and downs out, though, the second quarter level of job openings remained at record highs. Firms may be eating into their open job requisitions a little, but they have a long way to go. The one negative in the report was the modest rise in the number of people quitting. The level remains well below what we saw in the 2000s and we will not be able to say that the labor market is in good shape until people feel comfortable to simply tell their employers to take their jobs and you know what. We are not there yet.

MARKETS AND FED POLICY IMPLICATIONS: The labor market is in very good shape. Yes, the monthly job gains have been less than they were last year but they are still strong enough to keep the unemployment rate coming down. The JOLTS data raise some questions about the monthly job gain slowdown. Is it due to a moderation in demand or supply? Think about the housing market. Few debate the idea that a dearth of inventory is keeping home sales depressed. If you cannot find the right home, you don’t buy. But when you do find it, you have to pay the price or risk losing the home. Well, why don’t people think the same thing should be going on in the labor market? The low unemployment rate is making it difficult to dip into the shrinking “reserve army of the unemployed and underemployed”. But just like homebuyers who refuse to pay more for the home they like – and thus lose the homes – employers who refuse to pay up for workers are not getting the workers they need. Very simply, firms are behaving as if there isn’t a labor supply curve, just a labor demand curve. If you keep wages below the market-clearing wage by refusing to increase compensation, in a growing economy, demand will exceed supply. That is precisely what is going on in the labor market right now. Firms say they cannot find qualified workers but they will not pay up to attract qualified workers. The result: Slower job gains and modest wage increases. Interestingly – and in contrast to traditional economic thinking – higher wages could induce workers who are skilled and willing to move, to actually move! That would allow for a more dynamic labor market where people move up the ladder, creating openings for people at all skill levels. In other words, if wages increase faster, job gains could accelerate! Extending this logic to the housing market, higher home prices could induce more homeowners to list their homes, especially those with minimal equity, expanding inventory and increasing sales. When it comes to markets, if you don’t think about both supply and demand, you don’t get the analysis right.

Second Quarter Employment Cost Index

KEY DATA: Compensation: +0.2%; Private Sector: 0%; Private Sector Wages and Salaries: +0.2%; Private Sector Benefits: -0.2%

IN A NUTSHELL: “The labor market may be tightening but that has yet to help generate greater gains in compensation.”

WHAT IT MEANS: As the unemployment rate approaches the bottom range of the Fed’s estimate for full employment, you would expect to see wages start increasing faster. When a number of large companies announce that in the beginning of April they will raise their minimum wage, you would expect to see wage and salary growth accelerate. When job openings hit record highs and jobless claims reach record lows, you would expect to see businesses doing whatever they could to retain workers. Well, if you expected any or all of those things, you would have been wrong. Apparently, the labor market crashed in the spring as employment costs rose at the slowest pace since the Bureau of Labor Statistics started producing these numbers thirty-three years ago. Yes, even in the depths of the Great Recession, compensation didn’t increase more slowly. If you are guessing that I think the report may have been a little off, you would be correct.

Enough for the sarcasm, or maybe the attempt to put the data into perspective. So, what were the numbers? Basically, private sector firms not only held the line on compensation, but also managed to roll back benefits. The private sector wage increase was the smallest on record while the decline in benefits was only the second time that has happened. The public sector increases were generally in line with what we had been seeing for a while, so the slowdown in worker income gains came entirely from businesses using their market power to keep workers in line. Okay, there’s the sarcasm again. My apologies.

MARKETS AND FED POLICY IMPLICATIONS: I really like the Employment Cost Index report as it takes into account a much wider range of data than the hourly wage number we get in the employment report. That is why I am so surprised that with all indications that firms are doing what they can to hang onto workers and attract new ones, we would see the weakest compensation gains in over thirty years. Part of that may have been some outsized bonuses in the first quarter, but that also is not clear from the personal income numbers. So, I am at a loss to explain what happened. Will the Fed members worry about this? I am not sure. Sometimes data are just strange and this is one of those cases. But a stronger increase in compensation would have made it a lot easier to defend a rate hike in September. The weak rise gives ammunition to those who argue that the FOMC can wait a little longer before taking action.

Second Quarter GDP and Weekly Jobless Claims

KEY DATA: GDP: +2.3%; Consumption: +2.9%; Investment: -0.6%; Private Domestic Demand: +2.5%; Consumer Inflation: +2.2%; Excluding Food and Energy: +1.8%/ Jobless Claims: +12,000

IN A NUTSHELL: “Moderate growth and a slight firming in inflation don’t provide either side of the rate-hike debate with much ammunition.”

WHAT IT MEANS: Yesterday, the Fed hinted, slightly, at a bias toward raising rates in September, but they didn’t send a particularly strong message. One of the reasons is that the economy continues to grow at a moderate pace. Second quarter GDP came in a little less than expectations. Keep in mind, the Bureau of Economic Analysis, which crunches the numbers, completed the first round of a massive revision of growth and the way the data are seasonally adjusted. The first quarter of this year, which looked like it contracted by 0.2%, is now seen as having grown by 0.6%. So we started the year out above where we thought, which makes the gain a little better – though nothing spectacular. Second quarter growth was powered by strong vehicle demand. But households bought nondurable goods and spent a fair amount on services. In contrast, business investment declined. Much of that came from a drop in equipment spending, which is probably the oil-patch retrenchment. Housing added nicely to growth, the trade deficit helped as it narrowed a little and inventories played a modest role in slowing activity. The federal government continues to do whatever it can to kill the economy but at least state and local governments are spending again. There was a new measure created that reflects private domestic demand as it excludes trade, inventories and government spending. It rose solidly. This will be watched closely as it relates to what is happening in the domestic economy. On the inflation front, the Personal Consumption Expenditures price index rose at an annualized pace that should make the Fed members happy. Even excluding food and energy, it was near the Fed’s target.   Now it just has to keep that up.

Jobless claims rose last week but the level and 4-week moving average remain at historic lows when adjusted for the size of the labor force. The July employment report, which comes out at the end of next week, should be pretty good.

MARKETS AND FED POLICY IMPLICATIONS: The economy is not booming along. But that doesn’t mean it is soft either. It is growing fast enough to keep job gains at a level so that the unemployment rate will continue declining. Going forward, while it is not likely that spending on vehicles will be as strong as it was in the spring, stability in the oil patch should lead to a pick up in business investment. My expectation is that we should see growth at or even in excess of 3% over the next two quarters – but we don’t have any proof of that yet. For the Fed, the key numbers may be private domestic demand, which is growing solidly, and consumer inflation, which is slowly accelerating. Everything considered, this report really doesn’t add much to the argument over whether the Fed should hike sooner or later. Data over the next two months retain their primary position in the decision process.