Monthly Market Updates

CPI Easing, Payrolls Slowing

• • GDPNow for 2Q23: The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 2.1% on July 6th, up from July 3^rd after rounding.
  • Employment (June): Total nonfarm payroll employment increased by 209,000 in June, and the unemployment rate changed little at 3.6% (from 3.7%). The labor force participation rate held at 62.6%. Employment continued to trend up in government, health care, social assistance, and construction.
  • Inflation (May): The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in May on a seasonally adjusted basis, after increasing 0.4% in April. Over the last 12 months, the all items index increased 4.0% (down from 4.9% in April) before seasonal adjustment. The index for all items less food and energy (core CPI) rose 0.4% in May, as it did in April. The all-items less food and energy index rose 5.3% over the last 12 months, compared to 5.5% on a YoY basis in April.
  • The Producer Price Index (PPI) (May) for final demand declined 0.3% in May, seasonally adjusted. On an unadjusted basis, the index for final demand advanced 1.1% for the 12 months ended in May 2023 (vs. 2.3% for April).
  • Retail and Food Services Sales (May): Advance estimates of U.S. retail and food services sales for May 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $686.6 billion, up +0.3% (±0.5%) from the previous month, and up 1.6% (±0.7%) above May 2022.
  • Personal Income and PCE (May) Personal income increased $91.2 billion (0.4%) in May, according to estimates released by the Bureau of Economic Analysis. The PCE price index increased 0.1% in May on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.3% from April. From the same month one year ago, the PCE price index for May increased 3.8% (down from 4.4%). Food prices increased 5.8% and energy prices decreased 13.4%. Excluding food and energy, the PCE price index increased 4.6% from one year ago (compared to 4.7% in April).

Saudi Arabia and Russia Cut Production Again

The most recent official OPEC meeting took place on June 4.

• • On July 3, the Ministry of Energy in the Kingdom of Saudi Arabia announced that, in addition to what was agreed upon in the OPEC+ meeting, for the required production level for each country for the year 2024, the Kingdom will implement an additional voluntary cut in its production of crude oil, amounting to one million barrels per day, starting in July for a month that can be extended. The Kingdom’s production becomes 9 million barrel per day, and the Kingdom’s total voluntary cut will be 1.5 million barrels per day. The source explained that the Kingdom’s additional voluntary cut comes to reinforce the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets.​
  • As part of efforts to balance the market, Russia will voluntarily cut supplies to oil markets by 500,000 barrels per day in August by cutting exports by a specified amount.

World Growth Projections Updates

According to the Organization for Economic Co-operation and Development (OECD), global GDP growth is projected to moderate from 3.3% in 2022 to 2.7% in 2023, before edging up to a still subdued 2.9% in 2024.

Organization for Economic Co-operation and Development (OECD) (June 2023):

Fed Sees More Rate Hikes Ahead

• The next meeting of the Federal Open Market Committee is scheduled for July 26. The next meeting will not be accompanied by an update to the Fed’s Summary of Economic Projections (SEP). Currently, markets are pricing in over 85% chance of the Fed raising the Fed funds rate by +25 bps to a range of 5.25% to 5.50%, with a less than 15% chance the FOMC will maintain rates as they are.
  
  
  Highlights of the June FOMC Minutes:
  • Recession Risk: “The economic forecast prepared by the staff for the June 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 in the current quarter and the next one before declining modestly in both the fourth quarter of this year and 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, peak next year, and remain near that level through 2025.”
  • While Highlighting Uncertain Economic Trends: “Participants generally noted that banking stresses had receded and conditions in the banking sector were much improved since early March. Participants generally continued to judge that a tightening in credit conditions spurred by banking-sector stress earlier in the year would likely weigh further on economic activity, but the extent remained uncertain. Several participants mentioned that credit conditions had not appeared to have tightened significantly beyond what would be expected in response to the monetary policy actions taken since early last year. Some participants judged that it was still too early to assess with confidence the eventual effects of tighter bank credit conditions on economic activity and noted that it would be important to monitor closely the potential effects of banking-sector developments on credit conditions and economic activity.”
  • July Rate Increase is Likely: “In discussing the policy outlook, all participants continued to anticipate that, with inflation still well above the Committee’s 2% goal and the labor market remaining very tight, maintaining a restrictive stance for monetary policy would be appropriate to achieve the Committee’s objectives. Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate. Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable for considering the appropriate stance of monetary policy.”

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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