“Anhedonia” refers to the inability to experience pleasure. (Anhedonia was the working title of Woody Allen’s 1977 Annie Hall.) When it comes to the U.S. economy, many investors suffer anhedonia. In reality, the overall economic news is good.

To be sure, inflation fighters were handed a setback Friday with the release of hotter-than-expected producer price index (PPI) numbers for July. But the long-term trend remains disinflationary.

The U.S. Bureau of Labor Statistics (BLS) reported Friday that the PPI for July rose 0.8% annually. That level exceeds June’s increase of 0.2% and it’s higher than consensus expectations for an increase of 0.7%. On a month-to-month basis, the PPI increased 0.3%. The PPI measures wholesale prices.

Excluding the volatile categories of food and energy, the “core” PPI rose 2.4% annually in July. That compares to 2.4% in June and it’s hotter than expectations for a 2.3% increase. On a month-to-month basis, core PPI increased 0.3%.

The increase in demand was led by a 0.5% rise in final demand services (see chart).

The post-pandemic transition from demand for goods to services is continuing apace. The demand imbalance between goods and services is expected to even out over time.

The main U.S. stock market indices closed mixed on Friday, as follows:

• DJIA: +0.30%
• S&P 500: -0.11%
• NASDAQ: -0.68%
• Russell 2000: +0.13%

We got much better inflation news on Thursday, when the BLS reported that the consumer price index (CPI) rose 3.2% year-over-year in July, a slight increase from 3% in June that was widely expected. CPI climbed a meager 0.2% in July on a month-over-month basis.

The Fed will see one more CPI data release ahead of its September 20 Federal Open Market Committee (FOMC) meeting.

Overall, the CPI and PPI numbers tell us that an economic soft landing could be in the cards, a scenario that only a few months ago seemed unrealistic.

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A headwind in the fight against inflation is rising crude oil prices. OPEC+ production cuts and economic optimism have pushed West Texas Intermediate past $82 per barrel and Brent North Sea crude past $86/bbl. The oil market is tightening, with demand on pace to outstrip supply for the rest of 2023.

The main causes of global inflation, i.e. supply chain chaos caused by the pandemic and Russia-Ukraine war, have largely mended. Food inflation has mostly been caused by climate change destruction and Russian President Vladimir Putin’s willful disruptions of agricultural supplies, not (as some partisans claim) U.S. government spending. At the same time, shipping rates have been plummeting.

Federal stimulus to address economic damage from COVID increased money supply and partially stoked inflation, but this impact has waned. It’s also worth noting that stimulus prevented an even greater problem: a descent into a full-fledged economic depression.

Despite all these crosscurrents, the U.S. economy is showing remarkable stability and resilience.

The Labor Department reported Thursday that the number of Americans applying for jobless benefits climbed last week, but the increase isn’t sufficient to cause worry about the general health of the U.S. labor market.

U.S. applications for unemployment benefits rose by 21,000 to 248,000 for the week ending August 5, from 227,000 the week before. That’s the most in five weeks, but the report describes a cooling, not collapsing, labor market.

The four-week moving average of claims, a less volatile reading, ticked up by 2,750 to 228,250.

Further cooling of the labor market probably awaits in the months ahead, as leading indicators such as jobless claims and job openings signal slowing momentum. But that’s a welcome harbinger of disinflation.

Due to the tightness of the current labor market, unemployment isn’t likely to rise as high as it has during previous rate hiking cycles.

During erstwhile Fed Chair Paul Volcker’s scorched earth fight against inflation during the early 1980s, unemployment reached a peak of 11%. Interest rates reached 20% and inflation was 9.8% and rising. Financial markets were in turmoil. Inflation was eventually conquered, but at great cost.

This time around, the consensus expectation is that the headline unemployment rate will rise from 3.6% to a range of 4.5% – 5.0%, in line with Fed forecasts for this cycle. Most countries would be envious of those employment levels.

I hear a lot of griping about the current condition of the U.S. economy, but it’s unwarranted. If you were to visit certain news sites, you’d enter a parallel universe of economic hell and suffering. It just ain’t so.

Start increasing your exposure to stocks that tend to do well during a period of accelerating economic growth. As evidenced by the rise lately in the cyclical components of the Dow Jones Industrial Average, the foundation is being laid for a secular bull market in 2024.

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John Persinos is the editorial director of Investing Daily.

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