The article titled “FedViews: October 19, 2023,” presents the views of Zheng Liu, Vice President and Director of the Center for Pacific Basin Studies at the Federal Reserve Bank of San Francisco, on the economic outlook as of October 19, 2023. Here’s a summary:
- Inflation Dynamics: Inflation has seen significant moderation, with the 12-month headline personal consumption expenditures (PCE) inflation rate dropping to 3.5% in August 2023 from 7.1% in June 2022. Despite this reduction, inflation rates remain above the Federal Reserve’s 2% target. The goods component of PCE inflation has notably slowed, indicating an alleviation of global supply chain issues. However, services inflation persists at high levels.
- Labor Market Conditions: The labor market showcases strength, with substantial job additions (336,000 in September). The unemployment rate is low at 3.8%, and the labor force participation rate is stable. Although the market is tight, indicators suggest a balance between labor supply and demand, with job openings per unemployed worker and resignation rates normalizing.
- Wage Growth and Productivity: Wages continue to grow at a rate higher than inflation, supported by gains in labor productivity since the pandemic began. Productivity growth, spurred by capital investments for remote work, has recently slowed to pre-pandemic trends.
- Long-term Productivity Influencers: Factors affecting future productivity include the reshoring of production (potentially reducing productivity during the transition) and advancements in automation (likely boosting productivity). Trade tensions have led to a decreased reliance on imports from China, which could impact productivity growth patterns.
- Trade and Automation Trends: The U.S. has seen a decline in the share of imports from China, potentially influencing domestic manufacturing productivity. Concurrently, there is a growing emphasis on automation and artificial intelligence in job markets, indicating a shift in skills demand and potential productivity boosts.
- Economic Outlook: Considering various factors like inflation expectations, supply-demand dynamics, and monetary policy, PCE inflation rates are projected to gradually decrease to around 2% by the end of 2026.
Source: https://www.frbsf.org/economic-research/publications/fedviews/2023/october/october-19-2023/
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