Monthly Market Updates

Inflation Still High, 3Q GDP Positive

• • Gross Domestic Product (3Q22): Real gross domestic product (GDP) increased at an annual rate of 2.6% in the third quarter of 2022, according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased -0.6%.
  • Employment (October): Total nonfarm payroll employment increased by 261,000 in October, and the unemployment rate rose to 3.7%. The labor force participation rate was little changed at 62.2%. Notable job gains occurred in health care, professional and technical services, and manufacturing.
  • Inflation (September): The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4% in September on a seasonally adjusted basis after rising 0.1% in August. Over the last 12 months, the all-items index increased 8.2% before seasonal adjustment (vs. 8.3% in August). The index for all-items less food and energy rose 0.6% in September, unchanged from August. The all-items less food and energy index rose 6.6% over the last 12 months (vs. 6.3% in August).
  • The Producer Price Index (PPI) (September) for final demand fell 0.1% in August, seasonally adjusted. On an unadjusted basis, final demand prices moved up 8.7% for the 12 months ended in August (vs. 9.8% in July).
  • Retail and Food Services Sales (September): Advance estimates of U.S. retail and food services sales for September 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $684.0 billion, virtually unchanged (±0.5%) from the previous month, but 8.2% (±0.7%) above September 2021.
  • Personal Income and Consumer Spending (September): Personal income increased $78.9 billion (0.4%) in September, according to estimates released by the Bureau of Economic Analysis. The PCE price index increased 0.3% in September on a month-over-month basis. Excluding food and energy, the PCE price index increased 0.5% from August. From the same month one year ago, the PCE price index for September increased 6.2%. Prices for goods increased 8.1% and prices for services increased 5.3%. Food prices increased 11.9% and energy prices increased 20.3%. Excluding food and energy, the PCE price index increased 5.1% from one year ago.

World Economic Growth Slowing

The International Monetary Fund (IMF) updated its World Economic Outlook. Global growth is forecast to slow from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7% in 2021 to 8.8% in 2022 but to decline to 6.5% in 2023 and 4.1% by 2024.

International Monetary Fund (IMF) (October 2022):

Americas:

• U.S.:           +1.6%
• Canada:    +3.3%

Asia:

• China:       +3.2%
• Japan:       +1.7%

Emerging Markets:

• Russia       -3.4%
• India:         +6.8%

Europe:

• U.K.:           +3.6%

Euro-zone:         +3.1%

• Germany: +1.5%
• France:      +2.5%
• Italy:          +3.2%
• Spain:        +4.3%

Latin America:  

• Brazil:       +2.8%
• Mexico      +2.1%

TOTAL World:   +3.2%

Fed Raises Rates by +75 bps in November

At its November FOMC meeting the Fed raised the Fed Funds rate by +75 bps, as expected. The release did not include an update to the Summary of Economic Projections (SEP). The next Federal Open Market Committee meeting is in mid-December.

Highlights of the November FOMC Meeting and Chair Powell’s press conference:

• Monetary Policy: “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 3-3/4 to 4%.”
• Inflation: “Inflation remains well above our longer-run goal of 2%. Over the 12 months ending in September, total PCE prices rose 6.2%; excluding the volatile food and energy categories, core PCE prices rose 5.1%. And the recent inflation data have again come in higher than expected.  Price pressures remain evident across a broad range of goods and services.”
• Recession Risk: “I think no one knows whether there’s going to be a recession or not, and if so, how bad that recession would be. And our job is to restore price stability so that we can have a strong labor market that benefits all over time.”
• Pace of Hikes Likely to Slow: “In determining the pace of future increases in the target range, 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.”
• But Endpoint Higher than Thought: “There is significant uncertainty around that level of interest rates. Even so, we still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected. Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation.”

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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