Monthly Market Updates

GDP Slowing, Headline CPI Down But Core Steady

• • Advance GDP for 1Q23: Real gross domestic product (GDP) increased at an annual rate of 1.1% in the first quarter of 2023, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6%.
  • Employment (April): Total nonfarm payroll employment increased by 253,000 in April (estimate 185,000), and the unemployment rate declined to 3.4% (from 3.5%). The labor force participation rate was unchanged at 4%. Employment continued to trend up in professional and business services, health care, leisure and hospitality, and social assistance.
  • Inflation (March): The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in March on a seasonally adjusted basis, after increasing 0.4% in February. Over the last 12 months, the all items index increased 5.0% (down from 6.0% in February) before seasonal adjustment. The index for all items less food and energy (core CPI) rose 0.4% in March, after rising 0.5% in February. The all-items less food and energy index rose 5.6% over the last 12 months, compared to 5.5% on a YoY basis in February.
  • The Producer Price Index (PPI) (March) for final demand declined -0.5% in March, seasonally adjusted. On an unadjusted basis, the index for final demand advanced 2.7% for the 12 months ended in March 2023 (vs. 4.6% for February).
  • Retail and Food Services Sales (March): Advance estimates of U.S. retail and food services sales for March 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $691.7 billion, down -1.0% (±0.5%) from the previous month, but up 2.9% (±0.7%) above March 2022.
  • Personal Income and Consumer Spending (March): Personal income increased $67.9 billion (0.3%) in March, according to estimates released by the Bureau of Economic Analysis. The PCE price index increased 0.1% in March on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.3% from February. From the same month one year ago, the PCE price index for March increased 4.2% (down from 5.0%). Food prices increased 8.0% and energy prices increased 9.8%. Excluding food and energy, the PCE price index increased 4.6% from one year ago (unchanged in February).

IMF Updated Growth Projections for 2023

• • Global Economic Conditions: The baseline forecast is for growth to fall from 3.4% in 2022 to 2.8% in 2023, before settling at 3.0% in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023.
  • Inflation Outlook: Global headline inflation in the baseline is set to fall from 8.7% in 2022 to 7.0% in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases.

International Monetary Fund (IMF) (May 2023):

Americas:

• • U.S.:                       +1.6%
  • Canada:               +1.5%

  Asia:

  • China:                   +5.2%
  • Japan:                   +1.3%

  Emerging Markets:

  • Russia:                    +0.7%
  • India:                       +5.9%

   Europe:

  • U.K.:                        -0.3%

  Euro-zone:                     +0.8%

  • Germany:             -0.1%
  • France:                  +0.7%
  • Italy:                       +0.7%
  • Spain:                     +1.5%

   Latin America:

  • Brazil:                     +0.9%
  • Mexico:                  +1.8%

   TOTAL World:             +2.6%

Fed Hiked +25 bps, Likely on Pause

• The Federal Open Market Committee raised the Fed funds rate by +25 bps to a range of 5.00% to 5.25% at its meeting on May 3. Markets are now pricing the Fed is likely to keep rates steady at its June meeting.

  Highlights of the May FOMC Statement:

  • Another Rate Hike: “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 5 to 5-1/4%.
  • While Acknowledging Higher Risks: “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.”
  • A June Pause Looks Likely: “In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

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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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