Economic Outlook - April 2024
- Signs of a slightly cooling job market continue, despite fits and starts in the numbers. Non-Farm payrolls ending in February added 275,000 jobs, far higher than expected, while December and January job adds were revised down after initial postings. More importantly, the unemployment rate jumped from 3.7% to 3.9%, the highest rate since January 2022. Measured labor market rebalancing is underway, as the Federal Reserve pointed out in recent meetings, anticipating moving to 4.1% to close 2025. Wage growth has slowly ticked down, coming in at 4.3% last month. If these labor trends continue, they become the next links in the chain for evidence of a softer landing, thus supporting the Fed’s initiative to begin rate cuts in 2024.
- One anticipated outcome from lifting interest rates is slowing the housing boom. Surprisingly there was little evidence of such a move in 2023 due to such low supply. The turn of the calendar is providing a different picture as new home inventories rose to 463,000, 1.6 times the amount in October of 2020, and still substantially higher than pre-pandemic numbers. New home construction saw a pricing decline of -7.6% year over year. Existing home sales will provide a data point on the remaining, and larger, real estate market in coming months.
- Core consumer price index (CPI) inflation in the U.S. slowed again, registering 3.8% in February, the lowest level since April of 2021. The Federal Reserve’s preferred measure of inflation, the PCE or personal-consumption expenditures index, rose 2.5% to close out February. The PCE numbers are closely followed, as the Fed attempts to cool inflation down to a 2% range, which directly affects interest rate policy. Chairman Powell noted that the Fed would avoid overreacting to short run trends in inflation data before deciding interest rate direction going forward.
- The Federal Open Market Committee, or FOMC, decided to leave interest rates unchanged during their March meeting for the fifth consecutive time. The overnight lending range maintains the 5.25-5.5% rate, the highest level in over 22 years. The committee remains focused on the labor market and inflation to measure the “soft landing” scenario, with Chairman Powell commenting that “inflation has eased substantially while the labor market has remained strong, and that is very good news.”
- A large contributor to the run-up in equities has been the idea of “Goldilocks” returning by the Fed reducing rates and creating an easy economic environment. Heading into 2024, the market was pricing in the expectation of 4-6 rate reductions. Instead, the policy committee guided to three rate cuts this year. Chairman Powell remains steadfast in communicating that any rate reductions would be purely data dependent and not necessarily a surety, but at this point appears very likely for the back half of the year, in his own opinion.
Sources: Dow Jones Publishing, FactSet, Bloomberg, Bureau of Labor Statistics, U.S. Federal Reserve, Empirical Research Partners
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