KPMG forecasts one interest rate cut in December

There we go. So let’s bring in another voice of this conversation. Our next guest says the moderation in wages and job gains will be a relief for the Fed, which prefers to hold rates higher for longer than hike them to cool an overheating economy. She’s still expecting the first, though. Rate cut actually happened this year in December. Joining us now for the conversation is Diane Swan, chief economist at KPMG. Steve laid it out for us. Take us through whether you think this is the game changing type report or whether this is just one more data point in an otherwise kind of middled transitionary phase for the US economy. Well, I think it’s more of the latter. One of the things we missed on in this month was we saw half of the job gains in healthcare and social assistance, but we didn’t get the big increase in state and local hiring that we have seen yet. We know job openings in the state and local sector are remain extremely elevated and sort of have bucked the trend of cooling job openings out there. And that’s where we’ve also seen wages pick up as they had to catch up. They couldn’t catch up during a lot of union contracts did not reset until later and they couldn’t catch up at during the hiring frenzy. Now they are catching up and we just, you know lapsed the February 2020 level on the level of state and local hiring in November of last year. So there’s still a lot of room to run in that sector. And I do think it’s also important that job gains were much more broad based this month, excuse me, than we’ve seen in recent months. Well, what’s interesting too about the the moves and where the the rotation of the jobs have been, the the job creation has shifted from kind of like the post immediate post pandemic in the recovery and travel and leisure, leisure and hospitality has been kind of like that big more volatile upside and maybe even downside part to now healthcare and social assistance. As you point out, those two industries could be almost considered defensive, less economically sensitive. It almost seems like there’s a shift away from things like artificial intelligence, which some folks tell us is still very hot into certain parts of the economy that are more focused on things that we all need every day, and less on economic sensitivity. Diane, well that is true to some extent, although I would counter a little bit that one of the things we saw come back and we also saw come back in an extraordinary way and wages in the first quarter and cooled A bitten into April. But really was transportation and warehousing That was one of those sectors that you know came flying out of the initial lockdowns. We saw transportation and warehousing really pick up from online in 2023. The sector was pretty much in a recession in a funk. We saw a rebound in that employment. That was the second largest employment gains we got this month and it’s been rebounding since the beginning of the year. And that’s where wage gains have been as well, Steve, that the wage picture is what we want to kind of focus on right right now. The idea that Americans are still making enough money growing their wages to account for inflation and a little bit more, that little bit shrinking a little bit each and every month, is it enough to make the feel a little bit more comfortable about where interest rates are? You know, I’ve been trying to think of what would make people comfortable and when they will adapt to or otherwise internalize the new price level. They’re not there yet. Nobody is there yet. There’s still sticker shock going on. And so when it comes to sentiment, I think we’re a ways away, Dominic, from people feeling comfortable with that. I don’t think they look at their paycheck every month and say, oh, well, that’s enough. I don’t think they feel that way. I think they look at the idea separately of why wages are X and prices over here are Y and they’re quite a bit higher still from where they were before. So I don’t know what the like behavioral economist would tell us about when you start to feel comfortable with the new price level. But they’re going to have to get used to it because no matter who is president in the in in the next several months, when we get, we get that done. They’re not going to be advocating for lowering the price level. The price level is the price level. The question becomes can they simply attenuate the amount of increase on a monthly basis? I expect that to happen and I was just thinking, Dominic, when I was reading my report, you probably have to seasonally adjust or weekly adjust. My optimism? I’m a little more optimistic on Fridays that perhaps on Monday.