, the labor market has rebalanced. after running at very low levels, unemployment has edged up this year to 4. 2 percent in august, still quite low by historical standards. the slowdown in labor demand is most evident in payroll numbers. job creation averaged 267, 000 a month in the first quarter of the year and now stands at an average of 116, 000 in the three months ending in august, which is still a healthy pace of job creation. yet, given recent revisions in the payroll numbers, it is important to continue monitoring additional labor market indicators. in addition, the fall in diffusion indexes suggests that job creation cooling has been broad based, complementing the payroll data in showing rebalances in demand and supply across sectors. beyond payroll data, voluntary quits, which tend to reflect the rate at which people find a better job, are now back around where they were before the pandemic. the ratio of job vacancies to the number of people looking for - 10 work, the v / u ratio, has also fallen close to its pre - pandemic ratio. 11 in summary, after a period of demand exceeding supply, the labor market appears to have rebalanced. in tandem with the cooling in the labor market, economic activity has slowed but is still expanding at a solid pace. after adjusting for inflation, gross domestic product ( gdp ) grew 2. 5 percent in 2023 and at around a 2 percent annual rate in the first half of 2024. personal spending, which accounts for the majority of economic activity, has been solid this year, supported by a resilient labor market so far and high levels of household wealth relative to income. but given a rise in credit card and auto delinquencies, a rise in credit card balances, and a cooling labor market, i expect spending to grow at a somewhat more moderate pace moving forward. certainly, tight monetary policy has contributed to cool off aggregate demand and slow the economy. it has done so in large part by slowing spending on interest - sensitive expenditures, such as housing, as well as autos and other durable goods. other spending typically financed with credit, such as business equipment, has also been slower. another effect of tight monetary policy is to keep expectations of future inflation in check. and, to the extent that expectations affect decisions by businesses to set prices and by workers to negotiate wages, this has helped put downward pressure on inflation. survey - and market - based measures of

fomc ’ s 2 percent target. the progress on inflation is good news, but it is important to remember that households and businesses are still dealing with prices for many goods and services that are significantly higher than a couple of years ago. prices for groceries, for example, are about 20 percent higher than before inflation started rising in 2021, and while earnings have been rising faster than inflation, it may take some time for it to feel as though prices are back to normal. 2 inflation data are produced by the labor department, and when i served as chief economist at labor, i delved into the differential effects of inflation on various demographic groups. when inflation was at its peak in 2022, it was more than 1 percentage point higher for lower - income households, for those without a college degree, and for those aged 18 to 29 — all groups that spend a higher share of income on necessities and have less wealth to draw from. 3 fortunately, research by staff at the fed shows that disinflation helps close that gap as well, something that only adds to the urgency i feel about returning inflation to the fomc ’ s 2 percent goal. research on the causes of inflation and the subsequent disinflation show that both supply and demand forces have played an important role. in the past two years, specifically, improvements in supply, along with moderation in demand in part due to unlike in previous recoveries, those in the lower half of the distribution have benefited more from the real earnings increases during the post - pandemic period. the 12 - month change in average hourly earnings and the employment cost index have been rising faster than consumer price index inflation for those in the first and second quartiles since 2019 and since 2022, respectively, and for everyone across the distribution for roughly a year. see xavier jaravel ( 2021 ), “ inflation inequality : measurement, causes, and policy implications, ” annual review of economics, vol. 13, pp. 599 – 629. - 3tighter monetary policy, have both played a role in the disinflationary process. 4 supply chain bottlenecks as well as the drastic drop in the labor force due to excess retirements and the withdrawal of prime - age workers contributed to the initial rise in inflation, but the resolution of these disruptions and the return of workers to the labor force have also helped rein in inflation. early on, consumers shifted spending from services to goods, a development