CPI, Jobs & the Fed: What Investors Need to Know

of the market, we are looking at US equities higher and this does come on the heels of some blockbuster AI earnings as well as the latest CPI print.

Now the US labor market meanwhile is showing the signs of weakness after nonfarm payrolls unexpectedly shrank by 23,000 in the latest month.

Meanwhile, the unemployment rate did tick lower and that drop was driven by labor force participation hitting a. low meanwhile wage growth also slowed in the latest month.

So what does all of this data to tell us about the US economy?

Well joining us this morning to weigh in is Jeffrey Roach, chief economist for LPL Financial.

Good morning, Jeffrey.

Thank you so much for joining me.

So of course we got that CPI print and this does come on the heels of last week's July jobs report.

So what is your initial take on this inflation figure we saw?

Well, there's certainly some good news and some bad news within the report and, uh, so good morning, Remy.

Glad to be on again.

Wanted to just highlight a couple of things.

So, you know, in the near term, we have inflation pressures that I think are adding support to the hawkish members of the committee, uh, the Federal Open Market Committee at the Fed to take some action in September.

However, I think our baseline is you have an inflation trajectory where you could hit 2.7% inflation by the end of the year.

The decelerating directional change of inflation, I think could argue that the Fed needs to stay on the sidelines, to wait, to hold, because if they're patient enough, they will see inflation improve latter part of the quarter.

But in the near term, it's, it's still uncomfortably hot.

You think about airfare up 26% from a year ago.

That's uncomfortable.

Uh, Restaurant spending and restaurant prices still very, very high.

The government report calls that food away from home.

Uh, food at home, so groceries, uh, you're still seeing some pressures there on the, the food categories.

So part of that driven by very strong demand on the consumer side, not as much a supply point.

There's so much demand here for going out to eat.

Anybody who's a careful observer will know restaurants are packed even on traditionally less popular days.

So, short answer is this.

Uh, the report is encouraging for risk appetite.

Look at the positive, uh, futures we see after the report because inflation is decelerating, but in the very, very near term, it's still uncomfortably high.

Yes, and Jeffrey, you mentioned a lot of key points when it comes to this morning's release of that CPI print, but we are also paying attention to expectations for the central bank ahead of the September meeting and right now it does look as though no change stands up.

Around the 60% level, while no change for in terms of expectations for a hike stands at 40% right now, but of course when it comes to the central bank, we also know that the labor market is key.

So what was your reaction to that July jobs report?

Well, when I saw that negative number, a headline print that came out Friday morning, I had to go into the details.

You realize a lot of that decline was driven by local government education payrolls.

Uh, if you look at private sector payrolls, still a net ad, not very strong though.

We're still at a period where there's very slow.

Payroll growth, but in a confusing fashion, you saw a downtick in unemployment, as you know, part of that is because there's a fair amount of people that are dropping out of the labor force.

If you're not looking for a job, even though you're unemployed, if you're not looking, you're not counted in the labor force.

So the labor market seems to be fairly tight.

Near term inflation pressure's high.

That's obviously creating uh a little bit of support for, for some activity out of the Fed in September.

But the labor market in general is doing OK.

We still aren't seeing necessarily recessionary signals.

You think about the narrative from just a few months ago when we, we saw the initial attacks in the Middle East.

The economic data is telling us that the economy is growing.

We expect about 2.2% growth in Q3, a little above 2% year over year for 2026.

Inflation decelerating, net net.

That's good for risk assets.

Yes, and now that we have CPI out of the way, we will be getting producer prices tomorrow and on Friday morning retail sales figures.

And when we talk about the American consumers, as you highlighted, we do have that increase in terms of airfare as well as the cost of seemingly everything.

But what are you watching for when it comes to the data points coming out tomorrow morning as well as Friday?

Well, I wanna get a little more color into some of the mixed commentary we got out of the latest ISM report on business.

Uh, a number of business leaders in several categories like mining, other manufacturing industries are talking about the, the challenging times.

In fact, they're, they're making the case that the 2020 COVID pandemic was less challenging than it is now.

Maybe that's a little bit hyperbole.

But I think some of these upcoming reports, particularly the producer prices, import prices, will provide a little bit more clarity.

Again though, our baseline, the Fed does hold in September.

It's somewhat of a coin toss right now, and they are data dependent, as they say.

Uh, but at this point, uh, a coin toss most likely will hold in September.

What I'm also looking forward to is getting a little more clarity on how the, the unemployment insurance benefits claims are moving very, very low, meaning that a lot of individuals are not applying for unemployment insurance benefits, suggesting that low hire, low fire scenario continues to hold in this quarter of 2026.

Yes, and we will be getting PCE figures which we will be watching for and ahead of that September Fed rate announcement we'll be getting more inflation figures in terms of CPI as well.

But finally the national average for a gallon of gas now back above $4.

Dollars, which is something that we'll continue to monitor the longer the uncertainty continues over the Mideast conflict, the longer we have to contend with these higher gas prices.

So what's the reality for Americans as we approach the fall season as well as back to school?

Right, well, as you noted, a slight uptick in the retail gas prices.

Interestingly enough, the latest figures from the Conference Board suggest that consumer confidence actually rebounded a bit, so it's a little bit of a mixed signal in the sense that I think consumers are just able to be flexible.

Remember, we have the post-pandemic hybrid work environment.

Perhaps rising gas prices are not going to weigh on consumers as much as they did, say, just 67 years ago.

At this point though, I do think the consumer, particularly the lower end consumer, is going to have that pressure, but they're not the ones driving the economy.

It's the middle and upper end consumer that's driving growth at this point.

And so that's why we have a 2.2% forecast for Q3 growth.

The economy is weathering the headwinds fairly well at this point.

Well Jeffrey, we will have to leave it there for this morning, but I appreciate your time.

Thank you so much for weighing in on the latest economic data points, and I appreciate your perspective as well.

Have a great day.

Thanks.