Monthly Market Update

Hot Jobs, Sticky Inflation to Delay Rate Cuts

• • • Gross Domestic Product (1Q24): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2024 is 2.5% on April 4^th, down from 2.8% on April 1^st.
    • Employment (March): Total nonfarm payroll employment rose by 303,000 in March, and the unemployment rate changed little at 3.8%. The labor force participation rate was 62.7%. Job gains occurred in health care, government, and construction.
    • Inflation (February): The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4% in February on a seasonally adjusted basis, after rising 0.3% in January. Over the last 12 months, the all-items index increased 2% before seasonal adjustment. The index for all-items less food and energy rose 0.4% in February, as it did in January. The all items less food and energy index rose 3.8% over the last 12 months.
    • The Producer Price Index (PPI) (February): The Producer Price Index for final demand rose 0.6% in February, seasonally adjusted. On an unadjusted basis, the final demand index advanced 1.6% for the 12 months ended in February, the largest rise since moving up 1.8% for the 12 months ended September 2023.
    • Retail and Food Services Sales (February): Advance estimates of U.S. retail and food services sales for February 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $700.7 billion, up 0.6% (±0.5%) from the previous month, and up 1.5% (±0.7%) above February 2023.
    • Personal Income and PCE (February): Personal income increased $66.5 billion (0.3% at a monthly rate) in February, according to estimates released today by the Bureau of Economic Analysis. From the preceding month, the PCE price index for February increased 0.3%. Excluding food and energy, the PCE price index increased 0.3%. From the same month one year ago, the PCE price index for February increased 2.5% (up from 2.4% in January). Food prices increased 1.3% and energy prices decreased 2.3%. Excluding food and energy, the PCE price index increased 2.8% from one year ago.

World Growth Projections Updated

According to the Organization for Economic Co-operation and Development (OECD), high-frequency activity indicators generally suggest a continuation of recent moderate growth. Across countries, clear signs of strong near-term momentum continue in India, relative weakness in Europe, and mild near-term growth in most other major economies. Global growth, which rose by an estimated 3.1% in 2023, is projected to slow to 2.9% in 2024 and then increase to 3.0% in 2025.

Organization for Economic Co-operation and Development (OECD) (February 2024):

Bumpy Road Towards Inflation Goal

Central Banks – Bumpy Road Towards Inflation Goal

The last FOMC meeting took place on March 20^th. The Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50% for the 5^th straight meeting. As of this writing, markets are pricing in at a 97% chance of the Fed maintaining rates at the current level for the May 1^st, 2024 meeting, and a 3% chance of cutting rates by +25 bps.

Highlights of Press Conference Transcript:

• Inflation has Eased: “The economy has made considerable progress toward our dual-mandate objectives. Inflation has eased substantially while the labor market has remained strong, and that is very good news.  But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain.  We are fully committed to returning inflation to our 2% goal.  Restoring price stability is essential to achieve a sustainably strong labor market that benefits all.”
• Bumpy Road Toward 2%: “The January CPI and PCE numbers were quite high. There’s reason to think that there could be seasonal effects there.  But, nonetheless, we don’t want to be completely dismissive of it.  The February number was high, higher than expectations, but we have it at currently well below 30 basis points core PCE, which is not terribly high. So it’s not like the January number.  But I take the two of them together, and I think they haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward 2%”.
• Rate Hikes are Likely Over: “As labor market tightness has eased and progress on inflation has continued, the risks to achieving our employment and inflation goals are coming into better balance. We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.  The economic outlook is uncertain, however, and we remain highly attentive to inflation risks.  We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate. We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation and ultimately require even tighter policy to get inflation back to 2%”.

Monthly and YTD returns

Definitions:

Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).

• • GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
  • The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
  • Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
  • The Consumer Price Index (CPI):Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
  • The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
  • The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work. Source: Bureau of Labor Statistics (BLS).
  • Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
  • Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
  • The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
  • The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

  Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

  Financial Markets – Monthly and YTD returns (Table): Asset class performance is in USD and refers to the following indices: Equities: US Large Caps (S&P 500), Emerging Markets (MSCI EM), Europe (MSCI Europe), Japan (MSCI Japan). Fixed Income: 10-Yr. US Treasuries (BofAML US Treasury Current 10-Yr.), Emerging Markets Sovereign (USD) (JPM EMBI Global), US High Yield (BofAML US HY Master II), US Investment Grade (BarCap US Aggregate Bond), and Developed Markets Sovereign (excl. US) (JPM GBI Global Ex US). Source: Morningstar.

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