There is positive inflation news with the February Personal Consumption Expenditures (“PCE”) deflator showing a further drop in inflation. Stock markets reacted positively and closed up for the second month in 2023.
- February headline and core PCE inflation were 0.3% in February, down from 0.6% and 0.5% in January, respectively. PCE inflation for the twelve months ending in February was also lower for both headline and core PCE inflation.
- The biggest contributor recently to rising prices of goods and services is unit labor cost which is why the Fed has continued to raise interest rates to slow labor demand and shrink the 5 million job vacancy gap.
The U.S. economy remains strong but will soon feel the effects of bank stress causing further tightening in credit markets, on top of the impact of higher interest rates on businesses and consumers.
- After 517,000 new jobs in January and 311,000 in February, March new jobs is expected to be lower, with consensus estimates at 200,000 and the unemployment rate to remain at 3.6%.
- Slowing economic growth currently is expected to tip into negative growth in the second and third quarters of 2023, with an increase in the unemployment rate to 4.5% to 5%.
- Recent weekly, high-frequency payment card data indicate a more than 2% decline in retail sales in March compared to February.
- The outlook for 2023 corporate earnings remains slightly positive, and markets are expecting the Fed to cut interest rates sometime before the end of the year. Together these factors likely will contribute to positive stock market price movements.
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