5/3/24 - Weekly Economic Highlights

In April, the US labor market showed signs of moderation. The report released on Friday by the Bureau of Labor Statistics showed employers scaled back hiring, resulting in a modest increase of 175,000 jobs in nonfarm payrolls, the smallest gain in six months. The Bureau's report also highlighted an unexpected rise in the unemployment rate to 3.9% from 3.8%, providing further support of a potential cooling in the job market after a strong start to the year. Wage gains slowed, with average hourly earnings climbing 0.2% from March and 3.9% from a year ago, the slowest pace since June 2021. Sectors such as leisure and hospitality, construction, and government experienced slowdowns in job growth, while healthcare, transportation, and retail trade saw more substantial gains.

All eyes were on the Federal Reserve (Fed) as it maintained its current range for the federal funds rate between 5.25% and 5.50%, while acknowledging a lack of significant progress in curbing inflation to its 2% target. The Fed announced a slower reduction in bond holdings on its balance sheet, with the monthly cap on Treasurys reduced to $25 billion from $60 billion but maintaining the mortgage roll-off at $35 billion. Thus, the total balance sheet reduction cap decreased to $60 billion from $95 billion per month. This decision suggests a cautious approach to monetary policy adjustments, as Fed Chair Jerome Powell emphasized that inflation remains a concern. Powell also indicated that the next move in interest rates is unlikely to be an increase, providing relief to some investors who had speculated about such a move. The policy updates reflect the Fed's ongoing efforts to balance economic growth while returning the economy to its 2% inflation target.

Meanwhile, housing remains strong, with home prices rising 7.3% year-over-year in February, as reported by the S&P CoreLogic Case-Shiller national home price index. San Diego saw the biggest rise in prices in the 20-city index, up 11.4% from February of 2023. Chicago and Detroit reported 8.9% annual increases. The strong housing data was contrasted by the decline in consumer confidence, as reported by the Conference Board, to its lowest level since mid-2022, reflecting concerns about job availability, income prospects, and overall economic conditions. The Institute for Supply Management reported US factory activity contracted in April, while input prices rose at the fastest pace since 2022, posing challenges for producers amidst sluggish global markets. These factors, coupled with inflationary pressures and high borrowing costs, underscore the challenges facing households, businesses, and policymakers.

Financial markets reacted positively to the economic releases and the Fed's stance on monetary policy. The S&P 500 rose by 0.20% to 5110, fueled by strong corporate earnings, while Treasury yields declined. The two-year yield dropped to 4.77%, and the 10-year yield decreased to 4.48%, following Fed Chair Powell's remarks and subdued labor market data. Looking ahead, the moderation in labor market growth and the Fed's cautious stance on monetary policy underscore the delicate balance between economic expansion and management of inflation. Despite ongoing concerns, the market's response suggests cautious optimism about the economy's resilience amidst global uncertainties.

Next Week:

Senior Loan Officer Opinion Survey on Bank Lending Practices, Initial Jobless Claims, University of Michigan Consumer Sentiment Index

© 2024 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. All rights reserved. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates. The S&P Corelogic Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the nation.