Monthly Market Updates

Jobs Growth Slows in July, Possibility of a Soft Landing?

• • GDPNow for 3Q23: The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 3.9% on August 1st, up from 3.5% on July 28th.
  • Employment (July): Total nonfarm payroll employment rose by 187,000 in July, and the unemployment rate changed little at 3.5% (from 3.6%). The labor force participation rate held at 62.6%. Employment continued to trend up in health care, social assistance, financial activities, and wholesale trade.
  • Inflation (June): The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in June on a seasonally
    adjusted basis, after increasing 0.1% in May. Over the last 12 months, the all-items index increased 3.0% (down from 4.0% in May) before seasonal adjustment. The index for all items less food and energy (core CPI) rose 0.2% in June, down from 0.4% in May. The all-items less food and energy index rose 4.8% over the last 12 months, compared to 5.3% on a YoY basis in May.
  • The Producer Price Index (PPI) (June) for final demand declined 0.1% in June, seasonally adjusted. On an unadjusted basis, the index for final demand advanced 0.1% for the 12 months ended in June 2023 (vs. 1.1% for May).
  • Retail and Food Services Sales (June): Advance estimates of U.S. retail and food services sales for June 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $689.5 billion, up 0.2% (±0.5%) from the previous month, and up 1.5% (±0.7%) above June 2022.
  • Personal Income and PCE (June) Personal income increased $69.5 billion (0.3%) in June, according to estimates released by the Bureau of Economic Analysis. The PCE price index increased 0.2% in June on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.2% from May. From the same month one year ago, the PCE price index for June increased 3.0% (down from 3.8%). Food prices increased 4.6% and energy prices decreased 18.9%. Excluding food and energy, the PCE price index increased 4.1% from one year ago (compared to 4.6% in May).

Saudis Extend Cut

The 49^th Meeting of the Joint Ministerial Monitoring Committee (JMMC) took place on August 4th.

• • The committee will continue to closely assess market conditions noting the willingness of the DoC countries to address market developments and stand ready to take additional measures at any time, building on the strong cohesion of OPEC and participating non-OPEC oil-producing countries. The committee also expressed its full recognition and support for the efforts of the Kingdom of Saudi Arabia aimed at supporting the stability of the oil market and reiterated its appreciation for the Kingdom’s additional voluntary cut of 1 million barrels per day and for extending it for the month of September. The committee also acknowledged the Russian Federation for its additional voluntary reduction of exports by 300 kbd for the month of September.

Fed Hikes by +25 bps in July, Rate Cuts Unlikely for 2023

On July 26, the Federal Open Market Committee (FOMC) meeting raised the target range for the federal funds rate by +25 bps, bringing the target range to 5.25 to 5.50%. The next meeting will take place on September 20^th. Currently, markets are pricing in over 82% chance of the Fed maintaining rates as they are.

Highlights of Chair Powell’s Press Conference:

• • Possible September Hike: “Between now and the September meeting, we get two more job reports, two more CPI reports, I think we have an ECI report coming later this week, which is employment compensation index, and lots of data on economic activity. All that information is going to inform our decision as we go into that meeting. I would say it is certainly possible that we would raise funds again at the September meeting, if the data warranted. We’re going to be making careful assessments, as I said, meeting by meeting and I’ll close by saying; we’ve raised the federal funds rate now by 525 basis points since March 2022, monetary policy we believe is restrictive and is putting downward pressure on economic activity and inflation.”
  • Rate Cuts Unlikely This Year: “We’d be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year I don’t think, it would be, you know, many people wrote down rate cuts for next year. I think the meeting was several for next year. And that’s just going to be a judgment that we have to make then, a full year from now and it’ll be about how confident we are that inflation is in fact coming down to our 2% goal.”
  • Monetary Policy: “We want to see easing of supply constraints and normalization of pandemic related distortions to demand and supply, we want to see economic growth running at moderate or modest levels to help ease inflationary pressures, we want to see continued restoration of supply and demand balance, particularly in the labor market, and all of that should lead to declining inflationary pressures. What we see is we see those pieces of the puzzle coming together and we’re seeing evidence of those things now, but I would say that what our eyes are telling us is that policy has not been restrictive enough for long enough to have its full desired effects.”

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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