Monthly Market Updates

4Q GDP Expands, Employment Numbers Strong

• • Gross Domestic Product (4Q22): Real gross domestic product (GDP) increased at an annual rate of 2.9% in the fourth quarter of 2022, according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.2%.
  • Employment (January): Total nonfarm payroll employment increased by 517,000 in January, and the unemployment rate changed little at 3.4% (from 3.5%). The labor force participation rate was unchanged at 62.4%. Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and health care.
  • Inflation (December): The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1% in December on a seasonally adjusted basis, after increasing 0.1% in November. Over the last 12 months, the all items index increased 6.5% before seasonal adjustment. The index for all items less food and energy rose 0.3% in December, after rising 0.2% in November. The all-items less food and energy index rose 5.7% over the last 12 months, compared to 6.0% in November.
  • The Producer Price Index (PPI) (December) for final demand declined -0.5% in December, seasonally adjusted. On an unadjusted basis, final demand prices advanced 6.2% for the 12 months ended in December.
  • Retail and Food Services Sales (December): Advance estimates of U.S. retail and food services sales for December 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $677.1 billion, down -1.1% (±0.5%) from the previous month, but up 6.0% (±0.7%) above December 2021.
  • Personal Income and Consumer Spending (December): Personal income increased $49.5 billion (0.2%) in December, according to estimates released by the Bureau of Economic Analysis. The PCE price index decreased -0.2% in December on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.3% from November. From the same month one year ago, the PCE price index for December increased 5.0%. Food prices increased 11.2% and energy prices increased 6.9%. Excluding food and energy, the PCE price index increased 4.4% from one year ago.

IMF Raises World Economic Growth Projections

Key takeaways:

• Global growth is projected to fall from an estimated 3.4% in 2022 to 2.9% in 2023, then rise to 3.1% in 2024. However, the January forecast for 2023 is 0.2 percentage point higher than predicted in the October 2022 World Economic Outlook (WEO), but below the historical (2000–19) average of 3.8%. The rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity. The rapid spread of COVID-19 in China dampened growth in 2022, but the recent reopening has paved the way for a faster-than-expected recovery. Global inflation is expected to fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024, still above pre-pandemic (2017–19) levels of about 3.5%.

International Monetary Fund (IMF) (Jan. 2023):

Americas:

• U.S.:           +1.4%
• Canada:    +1.5%

Asia:

• China:       +5.2%
• Japan:       +1.8%

Emerging Markets:

• Russia       +0.3%
• India:         +6.1%

Europe:

• U.K.:           -0.6%

Euro-zone:         +0.7%

• Germany: +0.1%
• France:      +0.7%
• Italy:          +0.6%
• Spain:        +1.1%

Latin America:  

• Brazil:       +1.2%
• Mexico      +1.7%

TOTAL World:   +2.9%

Fed Slows the Pace of Hikes, Again

The first FOMC meeting of 2023 took place on February 1, with the Fed raising rates by +25 bps to a range of 4.5-4.75%.

Highlights of the December FOMC Statement and Chair Powell’s press conference include:

• Monetary Policy:“The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4%. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

Highlights of the Press Conference include:

• Pace of Hikes: “In light of the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation, the Committee decided to raise interest rates by 25 basis points today, continuing the step down from last year’s rapid pace of increases. Shifting to a slower pace will better allow the Committee to assess the economy’s progress toward our goals as we determine the extent of future increases that will be required to attain a sufficiently restrictive stance.  We will continue to make our decisions meeting by meeting, taking into account the totality of incoming data and their implications for the outlook for economic activity and inflation.”
• Financial Conditions: “Financial conditions didn’t really change much from the December meeting to now. It’s important that the markets do reflect the tightening that we’re putting in place. As we’ve discussed a couple of times here, there’s a difference in perspective by some market measures on how fast inflation will come down. We’re just going to have to see. I mean, I’m not going to try to persuade people to have a different forecast, but our forecast is that it will take some time and some patience and that we’ll need to keep rates higher for longer.”
• Potential for Rate Cuts: “Generally, it’s a forecast of slower growth, some softening in labor market conditions, and inflation moving down steadily but not quickly. And in that case, if the economy performs broadly in line with those expectations, it will not be appropriate to cut rates this year, to loosen policy this year.”

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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