Explainer-Charting the Fed’s economic data flow

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(Reuters) -The Federal Reserve held its benchmark overnight interest rate steady at the Sept. 19-20 policy meeting. Data since then will influence whether the U.S. central bank continues to stand pat at its Oct. 31-Nov. 1 meeting or proceed with another rate increase.

The Fed’s target policy rate has been raised to the 5.25%-5.50% range from near zero in March of 2022, and inflation measured by the central bank’s preferred personal consumption expenditures price index (PCE) was 3.5% in August, compared to a peak of 7% last summer.

Fed Chair Jerome Powell has said the pieces of the low-inflation “puzzle” may be aligning, though the central bank hasn’t declared its inflation fight over.

Here is a guide to some of the numbers shaping the policy debate:

RETAIL SALES (Released Oct. 17; next release Nov. 15):

Retail sales rose far more than expected in September, a 0.7% month-to-month gain that showed a U.S. consumer who is not flinching in the face of the tighter financial conditions engineered by the Fed. Data for the prior month was revised higher to bring the average increase for the third quarter to its highest since the second quarter of 2022 when inflation was running at its hottest pace. Economists like those at Goldman Sachs promptly upgraded their forecasts for third-quarter gross domestic product growth ahead of next week’s first take on overall U.S. economic activity for the July-September period. The data will keep Fed officials, who are eager to see some cooling of consumption, on their toes.

INFLATION (Released Oct. 12, next release Oct. 27):

Consumer price inflation on a year-on-year basis was 3.7% in September, unchanged from August. But the underlying “core” rate, which excludes more volatile goods like food and energy, slowed to 4.1% last month from 4.3% in August, continuing a slow but steady decline. Core measures are important to the Fed because they are considered more indicative of supply and demand conditions in the economy, are less influenced by global commodity prices, and can better capture whether price pressures are spreading or narrowing.

The other key inflation measure fell in August, adding to what many economists feel is likely to be a steady disinflation. The PCE price index, stripped of volatile food and energy costs, rose 3.9% on a year-over-year basis compared to 4.3% in July, and recent month-to-month increases have averaged close to the Fed’s 2% target. The headline rate did increase slightly, to 3.5% from 3.4%, but largely on the basis of energy costs. The Fed uses the headline PCE measure to set its inflation target, but the decline in the “core” index will be seen as evidence of slower price increases ahead.

The fact that recent month-to-month PCE data has been close to the 2% target has been highlighted by even hawkish Fed officials, and may be softening support for any further rate increases.

EMPLOYMENT (Released Oct. 6, next release Nov. 3):

Job growth in September blew past expectations in a confounding turn for Fed officials who thought the labor market had started to cool, likely stiffening the case for an additional rate increase. Employers added 336,000 jobs last month, nearly double what economists polled by Reuters had expected. Revisions to prior months tacked on an additional 119,000 jobs to the July and August totals, upending a trend Fed officials said was a sign of a labor market coming back into balance. The unemployment rate remained steady at 3.8%.

Hourly wages grew at a still brisk 4.2% on a year-over-year basis, though the month-to-month change of 0.2% was more contained.

JOB OPENINGS: (Released Oct. 3, next release Nov. 1)

Powell keeps a close eye on the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) for information on the imbalance between labor supply and demand, and particularly on the number of job openings for each person without a job but looking for one. That key ratio clung to its downward trend in August as the Fed’s rate hikes have slowed labor market demand. It’s now about 1.5-to-1, compared with the nearly two jobs for every person seeking work during most of 2022. Levels around 1.2 were considered tight for the U.S. labor market before the coronavirus pandemic.

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