Here’s a thought experiment: Try to imagine Jay Powell and the rest of the Federal Reserve jumping for joy because of reports that inflation is coming down. 

Let’s start with the Institute for Supply Management’s update on U.S. manufacturing for July, which included this line: “The Prices Index remained in ‘decreasing’ territory, at a level generally not seen since early in the coronavirus pandemic.” When, by the way, you had to look really hard to find any inflation in this economy. 

Also, we got a report from payroll processor Paychex showing that wage inflation is on the decline, in line with what economists expect in July’s national jobs report, coming Friday. 

I like it when an economist gives me an “economic zeitgeist” quote right at the top.

“The economy continues to expand, but inflation pressures are easing.” Thanks for doing the heavy lifting, Bill Adams, chief economist at Comerica Bank. 

Adams said the latest ISM report on manufacturing confirms that the pandemic-era dynamic of shortages-of-everything-causing-inflation is behind us.

“Supply chains are functioning better. Consumers are spending more on experiences and less on things,” he said.

More supply, less demand. “And that’s going to flow through to slower increases in manufactured goods prices or outright declines,” Adams said. “And that’s good for the Fed getting inflation back to their target.”

We’re seeing this inflation dynamic play out in the auto industry, said Garrett Nelson at CFRA. 

“With the easing of supply chains and the semiconductor shortage, auto production has increased. And that has led to an improvement in inventory levels,” Nelson said.

New car prices are still rising, but more slowly than last year. Used car prices are actually falling. 

Meanwhile, a gradual slowdown in the labor market — less employer demand for workers — is keeping a lid on pay hikes, said Frank Fiorille at Paychex.

“Wages are not accelerating anymore. You know, obviously still growing, but that growth has definitely been slowing,” Fiorille said.

Paychex just released its monthly small-business employment report, which found that annual wage growth fell below 4% in July for the first time since 2021. 

That means wages are growing faster than prices and workers are gaining ground against inflation, for a change.