- Stoyan Nenov/Reuters
Thus, the UBS macro strategy team put together a chart of major indicators for the US economy and where they stand compared with the most recent time the Fed raised rates in December and where they were two years ago.
Overall, the chart from Daniel Waldman and company does not make the US economy look very encouraging.
UBS’ argument is that for the Fed to raise rates, the economy has to look substantially better or at least not worse than it did when the Fed most recently hiked. Thus, the Fed should stay on hold (and the UBS team thinks it will).
The strategists believe that a strong jobs report on Friday could help cover the Fed if it does want to hike rates in September but that the rest of the economic data isn’t that good.
“Although labor market data is key, one additional positive employment report is unlikely to completely change investor sentiment on US growth, which has softened relative to both late 2014 (when the dollar started to rally) and late 2015 when the Fed last hiked,” Waldman and co. said.
A few caveats here. First, UBS analyzed just a handful of indicators. Wage growth, personal consumption, new home sales, and other indicators of economic strength have set cycle highs since the most recent Fed meeting.
Second, payroll growth is expected to slow as the labor market nears full employment because the number of available workers declines. So a headline decline isn’t a terrible disappointment.
Third, there’s an argument to be made that inflation has been weighed down by temporary factors.
Fourth, the manufacturing number is actually worse than the chart indicates, with the latest reading coming in at 49.4 on Thursday, which is back in contractionary territory. So the UBS chart doesn’t look great, but it isn’t the fullest of pictures either.
Regardless, it’s not as if the economy has been gangbusters since the last time the Fed hiked rates, and that may keep it on hold.