Monthly Market Update

Payrolls Exceed Expectations

• • GDPNow for 3Q23: The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 4.9% on October 5, unchanged from October 2 after rounding.
  • Employment (September): Total nonfarm payroll employment rose by 336,000 in September, and the unemployment rate was unchanged at 3.8%. The labor force participation rate, at 62.8%, was unchanged over the month. Job gains occurred in leisure and hospitality; government; health care; professional, scientific, and technical services; and social assistance.
  • Inflation (August): The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.6% in August on a seasonally adjusted basis, after increasing 0.2% in July. Over the last 12 months, the all-items index increased 3.7% (up from 3.2% in July) before seasonal adjustment. The index for all items less food and energy rose 0.3% in August, following a 0.2% increase in July. The all items less food and energy index rose 4.3% over the last 12 months, compared to 4.7% on a YoY basis in July.
  • The Producer Price Index (PPI) (August): PPI for final demand increased 0.7% in August, seasonally adjusted. On an unadjusted basis, the index for final demand rose 1.6% for the 12 months ended in August 2023 (vs. 0.8% in July).
  • Retail and Food Services Sales (August): Advance estimates of U.S. retail and food services sales for August 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $697.6 billion, up 6% (±0.5%) from the previous month, and up 2.5% (±0.7%) above August 2022.
  • Personal Income and PCE (August): Personal income increased $87.6 billion (0.4%) in August, according to estimates released by the Bureau of Economic Analysis. The PCE price index increased 0.4% in August on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.1% from July. From the same month one year ago, the PCE price index for August increased 3.5% (up from 3.3%). Food prices increased 3.1% and energy prices decreased 3.6%. Excluding food and energy, the PCE price index increased 3.9% from one year ago (compared to 4.2% in July).

Saudi Arabia and Russia to Continue Voluntary Oil Cuts

The 50th Meeting of the Joint Ministerial Monitoring Committee (JMMC) took place via videoconference on Wednesday, 04 October 2023.

• • 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 till end of December 2023. The committee also acknowledged the Russian Federation for extending its additional voluntary reduction of exports by 300 kbd till the end of December 2023.

World Growth Projections Updated

According to the Organization for Economic Co-operation and Development (OECD), the world economy is expected to grow by 3.0% in 2023, before slowing down to 2.7% in 2024. A disproportionate share of global growth in 2023-24 is expected to continue to come from Asia, despite the weaker-than-expected recovery in China.

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

Hitting Pause on Rate Hikes?

The last Federal Open Market Committee (FOMC) meeting took place on September 20. The Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50%. The next FOMC meeting will take place on November 1^st. As of this writing, markets are pricing in at over 75% chance of the Fed maintaining rates at the current level and less than 25% chance of raising rates +25 bps to the target range of 5.50% to 5.75%. However, the recent jobs report may change those estimates in the coming days.

Highlights of FOMC September Meeting Press Conference:

• • Higher for Longer: “If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 5.6% at the end of this year, 5.1% at the end of 2024, and 3.9% at the end of 2025. Compared with our June Summary of Economic Projections, the median projection is unrevised for the end of this year but has moved up by ½% point at the end of the next two years. These projections, of course, are not a Committee decision or plan; if the economy does not evolve as projected, the path of policy will adjust as appropriate to foster our maximum-employment and price-stability goals.”
  • Inflation Remains Too High:” Based on the consumer price index, or CPI, and other data, we estimate that total PCE prices rose 3.4% over the 12 months ending in August and that, excluding the volatile food and energy categories, core PCE prices rose 3.9%. Inflation has moderated somewhat since the middle of last year, and longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets. Nevertheless, the progress—process of getting inflation sustainably down to 2% has a long way to go. The median projection in the SEP for total PCE inflation is 3.3% this year, falls to 2.5% next year, and reaches 2% in 2026.”
  • Economic Growth Exceeds Expectations: “Recent indicators suggest that economic activity has been expanding at a solid pace, and, so far this year, growth in real GDP has come in above expectations. Recent readings on consumer spending have been particularly robust. Activity in the housing sector has picked up somewhat, though it remains well below levels of a year ago, largely reflecting higher mortgage rates. Higher interest rates also appear to be weighing on business fixed investment. In our Summary of Economic Projections, or SEP, Committee participants revised up their assessments of real GDP growth, with the median for this year now at 2.1%. Participants expect growth to cool, with the median projection falling to 1.5% next year.”
  • More Progress is Needed: “Looking ahead, we’re in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate. Our decisions will be based on our ongoing assessments of the incoming data and the evolving outlook and risks. I will have more to say about monetary policy after briefly reviewing economic developments.”

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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