Q2 ECI + July FOMC Reaction

• The ECI came in softer than expected today at +0.9% versus +1.0% consensus which MacroX correctly nowcasted. Our real-time wage pressures measure has consistently fallen so far in 2024 and the traditional data continues to follow?
• The FOMC seemingly teed up a rate cut at their next meeting in September in line with MacroX’s consistent call for rate cuts in 2024 - using alternative data meant we weren’t fooled by the acceleration in higher frequency measures of inflation in Q2 which led some analysts to call for no cuts in 2024
• As labor market softening becomes more important in line with the increased stress on the “dual mandate” by Chairman Powell, MacroX is watching several advanced warning labor market metrics which are available exclusively on our platform

Today was a packed day for US macro observers with the Employment Cost Index - the Fed’s preferred measure of wage inflation - released in the morning before the July FOMC decision.

The Employment Cost Index increased +0.9% in Q2 (vs consensus which had expected +1.0%) - in line with MacroX’s estimate we released to our clients before the release. A key theme that MacroX’s data has identified this year is declining wage growth - as our post in May shows - and this is just the latest data point confirming what our real-time alternative data nowcasts have been showing throughout 2024 - wage growth has consistently declined so far in 2024.

This decline in wage growth and the continued robustness of our overall economic activity nowcast have been the key reasons behind our consistent call that the US economy was progressing towards a “soft landing” and that rate cuts were coming. Today, the Fed kept rates on hold but did nothing to dissuade the market from anticipating the first cut to occur at their next meeting in September with the market now pricing in ~95% chance of a 25bps cut occurring. In particular, the rewording of the statement to stress “risks to both sides of … dual mandate” rather than just inflation risks seemed to heavily hint at imminent rate cuts.

The acceleration in more high-frequency measures of inflation in Q1 prompted many prominent pundits to argue that the Fed would not cut rates at all in 2024. However, these analysts typically rely upon traditional data which is lagged. Using MacroX’s alternative data-based nowcasts has allowed our clients to see how the US economy is evolving in real-time using many different data sources and not rely on that same lagged data.

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