September 2023 U.S. Economic Outlook

Bill Adams


Waran Bhahirethan

Image asset

Gas Prices Rise After OPEC+ Extends Supply Cuts; Fed Likely Holds Rates Steady This Month

Inflation’s return to normal has hit another bump in the road. Gas prices are up after OPEC+ extended oil supply cuts in early September, raising inflation in Comerica’s September forecast. Even so, most measures of core inflation continue to trend lower as car dealers and other retailers of durable goods offer consumers incentives to move inventory. The pullback in house prices between mid-2022 and last winter is starting to slow shelter inflation, too, and residential rents are rising more slowly as a big wave of new multifamily construction comes to market.

The labor market continues to cool. Employers added 187,000 jobs in August, and with downward revisions to June and July, job growth was a cool 153,000 per month in the summer. The unemployment rate rose to 3.8%, the highest since early 2022, as nearly three quarters of a million more people entered the labor force and looked for work. More jobseekers is good news for this economy, since a majority of small businesses have reported few or no qualified applicants for job postings since early 2021. Average hourly earnings of payroll employees rose 4.3% from a year earlier in August, matching its pace since March—and faster than the pre-pandemic normal of 3%. The Fed would like to see slightly slower wage growth to reduce the risk of wage-price pressures aggravating inflation in 2024. They are likely to get what they want soon, since alternative measures of wage growth are slowing more than average hourly earnings; these include the Federal Reserve Bank of Atlanta’s wage tracker, which is based on data from the government’s household survey, private payroll processing company ADP’s wage data, and anecdotal evidence like the Fed’s Beige Book economic survey and news reports of lower new hire wages at Walmart.

Consumer spending was solid in July and August. But it is growing faster than incomes, and there are signs of strains on the budgets of households with narrower financial cushions. Consumers are likely to throttle back on discretionary spending as student loan payments restart and higher gas prices eat into household budgets.

The Fed will be pleased to see a margin of slack open in the economy’s productive capacity. Comerica forecasts for the Fed to hold the federal funds target range steady at the next rate decision on September 20, and signal the following decision on November 1 will be data dependent. After more than two years of inflation exceeding their target, they would rather err by raising rates too much and slow the economy unnecessarily than by cutting too early and allowing inflation to rebound. That makes them more likely than not to make a final quarter percentage point hike for this cycle at the November decision, especially given the latest unwelcome rise in gas prices. Still, if core inflation continues to slow, the Fed is likely to pivot to rate cuts in the first half of 2024. Comerica’s September Economic Outlook raises the forecasts for long-term bond yields and mortgage rates, which tend to rise when the price of crude oil goes up.

Chart asset

For a PDF version of this publication, click here: September 2023 U.S. Economic Outlook(PDF, 200 KB)

The articles and opinions in this publication are for general information only, are subject to change without notice, and are not intended to provide specific investment, legal, accounting, tax or other advice or recommendations. The information and/or views contained herein reflect the thoughts and opinions of the noted authors only, and such information and/or views do not necessarily reflect the thoughts and opinions of Comerica or its management team. This publication is being provided without any warranty whatsoever. Any opinion referenced in this publication may not come to pass. We are not offering or soliciting any transaction based on this information. You should consult your attorney, accountant or tax or financial advisor with regard to your situation before taking any action that may have legal, tax or financial consequences. Although the information in this publication has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its timeliness or accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

Comerica Economic Commentary Newsletter Sign-up

September 15, 2023
Bill Adams photo

Bill Adams

SVP, Chief Economist
Comerica Bank
Waran Bhahirethan photo

Waran Bhahirethan

VP, Senior Economist
Comerica Bank

Related Content