4/28 - Weekly Economic Highlights

Financial market participants digested a slew of economic data and corporate earnings this week ahead of the Federal Reserve's next meeting set for May 2-3. Recent inflation data and economic indicators support another 0.25% interest rate hike to 5.25% by the Federal Reserve. US GDP rose by 1.1% in Q1, driven primarily by consumer spending, while business outlays for equipment registered the largest drop since 2020. Corporate earnings reports have been in line with or slightly above analysts' estimates for most companies, contributing to the market's overall outlook. Core inflation rose 4.6% year over year, while employment costs increased 1.2% in Q1. Although annual inflation appears to have peaked last summer, the return to the Fed's 2% target remains uneven with high service-sector inflation and strong wage growth as headwinds.

Meanwhile, the housing market is showing signs of recovery, with new home sales rising unexpectedly by 9.6% to an annualized pace of 683,000 in March, aided by somewhat lower mortgage rates. The current contract rate for a 30-year fixed-rate mortgage fell this week to 6.34%, according to Freddie Mac. Builders are using incentives and price reductions to improve affordability for prospective buyers. The supply of new homes remains limited, however, with only 432,000 new homes available for sale as of last month, which is the lowest in nearly a year. Additionally, pending home sales fell by 5.2% in March as limited supply and higher year-over-year mortgage rates remain major constraints on the housing market. The S&P CoreLogic Case-Shiller National Home Price Index rose just 0.36% year-over-year in February, the smallest gain since 2012, after rising 2.58% in the prior month. The Southeast remains the strongest region, with Miami, Tampa, and Atlanta reporting the highest year-over-year gains among the 20 cities surveyed, while the West continues to be the weakest.

Treasury yields moved lower this week; the 2-year treasury is down 11 basis points to 4.07% after starting the week at 4.18%, and the 10-year fell 11 basis points to 3.46% as of Friday morning. In addition, the yield inversion between the 2-year and 10-year treasury was unchanged, ending the week at approximately 61 basis points. Next week, market participants will turn their attention to the Federal Reserve and the meeting of its Federal Open Market Committee (FOMC) set for May 2-3. Given recent economic data, the Chandler team believes the FOMC will tighten monetary policy by increasing the federal funds rate an additional 0.25% to 5.25% at their upcoming meeting and hold rates at that level for a period of time. As is the case with every FOMC meeting, investors will be analyzing the statement and the responses from Fed Chair Powell at the press conference following the meeting to glean any insight about potential changes in policy.

Next Week:

S&P Global US Manufacturing PMI, ISM Manufacturing, JOLTS Job Openings, Factory Orders, Durable Goods Orders, Wards Total Vehicle Sales, ADP Employment Change, S&P Global US Services PMI, S&P Global US Composite PMI, Federal Open Market Committee Meeting (FOMC) Decision, ISM Services Index, Employment Report, Consumer Credit

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© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg and Federal Reserve. 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.