US Outlook Report: Growth Without Inflation

Next week’s economic indicators should highlight the strength and resilience of the U.S. economic expansion.  But whether it will be enough to distract investors from the near-term political risks coming from Washington, including raising the debt ceiling, passing a FY 2018 federal budget, and getting tax reform done, is still an open question. For what it’s worth, the August employment report, released next Friday, is expected to continue the recent string of robust monthly job creation with another 190K net new jobs created. 
 
The labor market is showing no signs of cooling down.  Initial jobless claims are trending well below economists’ expectations again this month.
 
We think job growth is sufficiently strong that the U.S. unemployment rate could drop again to an expansion low 4.2% in August. This would be the lowest unemployment rate since January 2001.  If realized, it would mean the U.S. unemployment rate hits that level a full four months earlier than the FOMC expected.  Many FOMC members could see this as a good reason to stick with their original plan for balance sheet shrinkage and one more rate hike before the end of the year, even with inflation still holding below their targets.
See the full report here.