Monthly Market Updates

Core CPI Sticky, Employment Strong

• • GDPNow for 2Q23: The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 0%on June 1, up from May 26 after rounding.
  • Employment (May): Total nonfarm payroll employment increased by 339,000 in May (est. 195,000), and the unemployment rate rose by 0.3 percentage points to 3.7% (from 3.4%). The labor force participation rate held at 62.6%. Job gains occurred in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.
  • Inflation (April): The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4% in April on a seasonally adjusted basis, after increasing 0.1% in March. Over the last 12 months, the all items index increased 4.9% (down from 5.0% in March) before seasonal adjustment. The index for all items less food and energy (core CPI) rose 0.4% in April, as it did in March. The all-items less food and energy index rose 5.5% over the last 12 months, compared to 5.6% on a YoY basis in March.
  • The Producer Price Index (PPI) (April) for final demand advanced 0.2% in April, seasonally adjusted. On an unadjusted basis, the index for final demand advanced 2.3% for the 12 months ended in April 2023 (vs. 2.7% for March).
  • Retail and Food Services Sales (April): Advance estimates of U.S. retail and food services sales for April 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $686.1 billion, up +0.4% (±0.5%) from the previous month, but up 1.6% (±0.7%) above April 2022.
  • Personal Income and PCE (April): Personal income increased $80.1 billion (0.4%) in April, according to estimates released by the Bureau of Economic Analysis. The PCE price index increased 0.4% in April on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.4% from March. From the same month one year ago, the PCE price index for March increased 4.4% (up from 4.2%). Food prices increased 6.9% and energy prices decreased 6.3%. Excluding food and energy, the PCE price index increased 4.7% from one year ago (compared to 4.6% in March).

Saudi Arabia Cuts Production

• • The 35^th OPEC and non-OPEC Ministerial Meeting was held on June 4. The statement noted that “In light of the continued commitment of the OPEC and non-OPEC Participating Countries in the Declaration of Cooperation (DoC) to achieve and sustain a stable oil market, and to provide long-term guidance for the market, and in line with the successful approach of being precautious, proactive, and pre-emptive, which has been consistently adopted by OPEC and non_OPEC Participating Countries in the DoC, the Participating Countries decided to:
    • Adjust the level of overall crude oil production for OPEC and non-OPEC Participating Countries in the DoC to 40.46 mb/d, starting 1 January 2024 until 31 December 2024
    • Affirm and extend the mandate of the Joint Ministerial Monitoring Committee (JMMC) and its membership, to closely review global oil market conditions, oil production levels, and the level of conformity with the DoC and this Statement, assisted by the Joint Technical Committee (JTC) and the OPEC Secretariat. The JMMC is to be held every two months.

Will June FOMC Meeting Be a Skip?

The next meeting of the Federal Open Market Committee is scheduled for June 14. The meeting will be accompanied by an update to the Fed’s Summary of Economic Projections (SEP). Currently, markets are pricing in over 75% chance of the Fed maintaining the Fed funds rate at a range of 5.00% to 5.25%, with a less than 25% chance the FOMC will raise rates by +25 bps. Markets are now pricing the Fed is resume raising rates at the July meeting.

Highlights of the May FOMC Minutes:

• Recession Risk: “The economic forecast prepared by the staff for the May FOMC meeting continued to assume that the effects of the expected further tightening in bank credit conditions, amid already tight financial conditions, would lead to a mild recession starting later this year, followed by a moderately paced recovery. Real GDP was projected to decelerate over the next two quarters before declining modestly in both the fourth quarter of this year and the first quarter of next year. Real GDP growth over 2024 and 2025 was projected to be below the staff’s estimate of potential output growth. The unemployment rate was forecast to increase this year, to peak next year, and then to start declining gradually in 2025.”
• While Acknowledging Higher Risks: “Participants noted that risks associated with the recent banking stress had led them to raise their already high assessment of uncertainty around their economic outlooks. Participants judged that risks to the outlook for economic activity were weighted to the downside, although a few noted the risks were two sided. In discussing sources of downside risk to economic activity, participants referenced the possibility that the cumulative tightening of monetary policy could affect economic activity more than expected, and that further strains in the banking sector could prove more substantial than anticipated.”

June Pause Is Likely: “Many participants focused on the need to retain optionality after this meeting. Some participants commented that, based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings. Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.”

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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  The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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