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What this video’s about:

In the latest edition of the Market Share, Paul Gifford, Chief Investment Officer at 1st Source Bank, talks with Erik Clapsaddle, Senior Fixed Income Portfolio Manager. They discuss recent changes in the U.S. economy, focusing on the labor market, inflation, and Federal Reserve policies.

Labor Market Trends

Erik Clapsaddle notes significant changes in the labor market over the past year. The U.S. unemployment rate increased from 3.4% in April of last year to 4.1% today. Job openings, once 6.2 million more than the number of unemployed, have now decreased to a surplus of 1.5 million. This shows the job market is normalizing.

Manufacturing payrolls have also declined. In the first half of this year, manufacturing jobs decreased by 10,000, compared to an increase of 11,000 in the same period last year. Other indicators, such as initial jobless claims and continuing claims, have been rising.  This shows a softening labor market. The labor force participation rate is flat, and the underemployment rate has increased from 6.5% to 7.4% over the past 18 months.

Inflation and Consumer Impact

Inflation remains a key issue, currently at 2.6%, slightly above the Federal Reserve’s 2% target. Clapsaddle explains that inflation has hit consumers and small businesses hard, though it has had less effect on corporate AmErika. A concerning trend is the sharp rise in consumer credit and credit card debt, along with a persistently low U.S. savings rate.

Federal Reserve’s Response

Federal Reserve Chairman Jerome Powell has been watching labor market and inflation trends closely. In a recent congressional hearing, Powell suggested that the Fed might start cutting rates even if inflation doesn’t fall to the 2% target by year-end. This potential change is supported by recent data showing inflation might be stabilizing.

Positive Economic Indicators

Despite these challenges, there are positive signs in the economy. Average hourly earnings have consistently outpaced inflation over the past 12 months, and the housing market remains stable. Clapsaddle also highlights the benefits of fixed income investment.  Real yields on bonds remain positive, offering a safer investment option compared to stocks.

Conclusion

Labor market shifts, inflation concerns, and Federal Reserve policies are tricky topics.  But The Market Share is here to make them easier to understand. Paul and Erik’s insights highlight the ongoing changes and provide a balanced perspective on what lies ahead.

Watch the full video for more in-depth analysis on these key trends.

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