9/2- Weekly Economic Highlights

Overall economic data released this week remain consistent with the moderating growth and inflation narrative the Chandler team has been highlighting over the past several weeks. Consumer Confidence surprised to the upside relative to consensus expectations of 98.0, coming in at 103.2, a notable increase from the prior months 95.3. The ISM Manufacturing data was also constructive, coming in above expectations at 52.8, however, some of the underlying ISM data were also positive for the overall growth and inflation outlook with the ISM prices paid index trending softer to 52.5, ISM new orders increasing to 51.3, and ISM employment increasing to 54.2. The headline event for the week was the payrolls report released this morning. Job growth remains solid at 315k in August, mildly above consensus expectations of 298k. The three-month moving average on payroll growth slowed to 378k, compared to the prior months 402k, yet the underlying employment situation remains sound despite the slight downtick in momentum. The unemployment rate increased by 0.2%, to 3.7%, but the increase was also accompanied by a 0.3% increase in the labor force participation rate to 62.4%. Wage growth remains firm with average hourly earnings on a year-over-year basis holding steady at 5.2% and we expect the metric to slowly move lower in the coming months given the current month-over-month run rate in average hourly earnings.

Both equity and fixed income markets remain volatile, a trend we expect to continue in coming weeks until market participants obtain better visibility on the inflation outlook and the ultimate implications for the trajectory of monetary policy. Key inflation metrics have started to move lower, but the pace and magnitude remain highly uncertain and will contribute to Federal Reserve policymakers maintaining a hawkish disposition. A key variable for market participants is the level of interest rates and forecasting at what point the increase becomes too restrictive for the economy to obtain trend like growth. On a week-over-week basis interest rates moved higher, but the change was more pronounced in longer maturity securities, with the ten year Treasury note increasing by 0.18% to 3.22%, compared to the 0.01% increase in the two year Treasury note to 3.41% (as of the time of this writing). Although the spread between two year and ten year Treasury notes remains inverted at -0.19%, the level of inversion is well off the tights and significantly less inverted than the August 26^th valuation of -0.36%, an overall positive development for the outlook as an inverted curve is historically a harbinger to a more challenging economic backdrop. The Chandler team continues to believe interest rates will have the ability to drift higher, consistent with further increases in the Fed Funds rate at the September, November, and December FOMC meetings. We also believe monetary policy works with a lag, and given the material change in interest rates and tightening of financial conditions thus far in 2022, we anticipate the Federal Reserve will be in a position to become less hawkish later in the year as the trends in inflation become less precarious.

Next Week:

ISM Services and Consumer Credit

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© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. 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 rate.