Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / The July Jobs Miss and What It Means for Your Wallet
Transcript
- Lucas: Luna, the July jobs report came out Friday, and it was a genuine surprise - the economy actually lost twenty-three thousand jobs. That's the first negative print we've seen in a while, and it has everyone asking what it means for inflation. Luna: It really was unexpected. I mean, forecasts were for something like a hundred thousand new jobs, and instead we got a contraction. How does that square with the fact that core inflation is still hovering around three percent? Lucas: That's exactly the puzzle. And you know, before we dig into that disconnect, I want to say something about this show. We keep Fexingo free and ad-free, and that's only possible because a few listeners chip in a couple of dollars a month. If walking through the economy with us has made something click for you, you can support us at buy me a coffee dot com slash fexingo. It genuinely makes a difference, and we appreciate it. Luna: Yeah, it really does. Even a small contribution helps us keep the lights on and the episodes coming. Now, back to that jobs number - what does a shrinking labor market tell us about prices? Lucas: So the usual thinking is that a weaker job market means less demand, which should pull inflation down. But the data we have - core CPI at three hundred thirty-six point one in June, basically flat from the month before - suggests that's not happening yet. Luna: Right, and the Fed's preferred gauge, core PCE, actually ticked up slightly to one hundred thirty point three. So we've got a cooling labor market but sticky prices. What gives? Lucas: Well, part of it is that the jobs report might be noisier than it looks. The July numbers can get revised, and the headline loss was driven by temporary factors - think strikes and weather. Private payrolls only added forty-four thousand, which is weak, but it's not a collapse. Luna: So you're saying we shouldn't overreact to one month? But the market clearly reacted - the S&P 500 is up over two percent in five days, and gold is up over seven percent. That seems like a big move. Lucas: Exactly. And gold is the interesting one. It's trading around forty-four hundred dollars, up seven point four percent in just five days. Investors are piling into gold as a hedge, and that tells you something about their inflation expectations. Luna: But if inflation is cooling, why would gold be rallying? Usually gold is an inflation hedge, but if prices are stable, that doesn't make sense. Lucas: That's the paradox we've been circling in recent episodes. Gold isn't just about current inflation - it's about expectations of future policy. A weak jobs report increases the odds the Fed cuts rates, and lower rates tend to weaken the dollar, which supports gold. Luna: So the gold rally is more about the Fed easing than about inflation itself? Lucas: Right. And you see that in the bond market too - ten-year Treasury yields are down, which suggests the market is pricing in rate cuts. But here's the thing: core inflation is still above the Fed's two percent target, so they're in a tough spot. Luna: Do you think the Fed will actually cut rates at the September meeting? The fed funds rate has been stuck at three point six three percent since July. Lucas: It's getting more likely, but not a done deal. The Fed has been cautious, and they've emphasized that they need to see sustained evidence that inflation is moving toward two percent. One jobs report might not be enough. Luna: But if the labor market keeps weakening, wouldn't they have to act? I mean, if people are losing jobs, that's a bigger problem than slightly elevated inflation. Lucas: That's the classic Fed dilemma - the dual mandate. They want maximum employment and price stability, and right now those two goals are pulling in opposite directions. The jobs report suggests the employment side is cooling, but inflation is still above target. Luna: So what does this mean for the average person? If the Fed cuts rates, does that help with rent or grocery bills? Lucas: It's not immediate. Rate cuts would eventually feed through to lower borrowing costs, which could help with mortgages and business loans. But for everyday prices, the effect is slower. Rent, for example, has been sticky - even though new leases are falling, existing leases are still high. Luna: And services like healthcare and education are still climbing. So the headline inflation number might be cooling, but the things people actually need - medical care, housing, education - are still going up. Lucas: Exactly. That's why we talk about core inflation excluding food and energy. It strips out the volatile stuff, but even that is stuck at around three percent. The last few months have shown that underlying inflation is persistent, especially in services. Luna: So the jobs report might be a warning sign that the economy is slowing, but it doesn't necessarily mean prices are about to drop. It's a tricky situation. Lucas: And that's why the market reaction is so interesting. Stocks are up because a weaker economy might prompt rate cuts, which is good for corporate valuations. But gold is up because investors are worried about the longer-term inflation picture. It's a split personality. Luna: Do you think that split is sustainable? Can stocks keep rallying if the economy is actually losing jobs? Lucas: It can for a while, but eventually the fundamentals catch up. If companies are seeing weaker demand, that hits earnings, and stock prices will follow. But right now, the market is betting that the Fed will ride to the rescue with rate cuts. Luna: So what should our listeners watch for in the coming weeks? What would change the picture? Lucas: The next jobs report in September will be crucial. If we see another weak print, that really puts the pressure on the Fed to cut. Also, watch the next CPI release - if core inflation starts to dip below three percent, that gives the Fed more cover to act. Luna: And of course, we'll be watching gold. If it keeps climbing, that suggests investors are still worried about inflation despite the softening labor market. Lucas: Exactly. Gold is a real-time barometer of inflation expectations, and right now it's saying that the recent cooling in price data hasn't convinced everyone. It's a fascinating time. Luna: It really is. Lucas, thanks for breaking that down. I feel like I have a much clearer picture of what's happening. Lucas: Happy to. And remember, if you found this helpful, consider supporting us at buy me a coffee dot com slash fexingo. It keeps these conversations going.