Explainer: Charting the Fed’s economic data flow

(Reuters) – Federal Reserve officials project the U.S. central bank will cut its benchmark overnight interest rate during 2024, but the timing and pace of the reductions in borrowing costs will depend heavily on upcoming inflation and jobs data.

The Fed will hold its next policy meeting on Jan. 30-31, and while the central bank is expected to maintain its policy rate in the current 5.25%-5.50% range, data in the meantime could bring the prospects of rate cuts into better focus.

This year has begun with a rush of major readings on inflation, the jobs market, and consumer spending. Here is a guide to some of the numbers shaping the policy debate:

INFLATION (CPI released Jan. 11; next release PCE, Jan. 26):

The consumer price index (CPI) jumped 3.4% on a year-on-year basis in December from 3.1% the prior month while the core rate edged down to 3.9% from 4.0%, stronger-than-expected readings that underscored the bumpy path back to the Fed’s 2% target rate.

Meanwhile, annual inflation by the Fed’s preferred personal consumption expenditures price index fell to 2.6% in November and prices on a monthly basis declined for the first time since April 2020. The “core” index excluding food and energy prices also declined to 3.2%, the lowest that key gauge of trend inflation has been since April 2021.

Fed officials at their final policy meeting of 2023 forecast continued improvement in both measures this year.

EMPLOYMENT (Released Jan. 5, next release Feb. 2):

Job growth in December increased more than expected to 216,000 from 173,000 in the prior month, although there were some signs of a gradual cooldown.

The unemployment rate remained unchanged at 3.7%, but that was due to 676,000 people leaving the labor force, almost erasing the gains in participation since February. Household employment fell sharply and the workweek was on average slightly shorter than in November.

The employment report also included the tally for last year’s job gains. The economy added 2.7 million jobs in 2023, a sharp step-down from the 4.8 million positions created in 2022.

Overall the latest report remains consistent with the Fed’s view of an economy that can continue growing while inflation also ebbs.

The pace of annual wage growth, however, picked up to 4.1% from 4.0%, higher than many Fed officials feel is consistent with price stability.

Wage growth is still well above its pre-pandemic average and the 3-3.5% range that most policymakers view as consistent with the Fed’s 2% inflation target.

JOB OPENINGS (Released Jan. 3, next release Jan. 30):

Fed Chair Jerome Powell keeps a close eye on the U.S. Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) for information on the imbalance between labor supply and demand, and particularly on the number of job openings for each person who is without a job but looking for one. The ratio had been falling steadily towards its pre-pandemic level, but in November remained close to 1.4-to-1, still above the 1.2-to-1 level seen before the health crisis. Other aspects of the survey, like the quits rate, have edged back to pre-pandemic levels.

RETAIL SALES (Released Dec. 14; next release Jan. 17):

Retail sales rose 0.3% in November, another in the series of “upside surprises” the economy delivered over the course of 2023. The “core” sales reading, which strips out gasoline, autos, building materials and food services, and more closely aligns with estimates of economic growth, also outpaced forecasts to come in at 0.4%, in the latest sign of the resilience of the U.S. consumer. On a trend basis, consumer spending rates are slowing in a way the Fed is hoping to see as it watches for signs the aggressive rate hikes it has delivered have begun to trim overall demand for goods and services.

(Reporting by Dan Burns, Howard Schneider, Ann Saphir and Lindsay Dunsmuir; Editing by Andrea Ricci)