Economic data in March took a back seat to the fireworks surrounding the meltdowns of Silicon Valley Bank and Signature Bank. The debate over “hard/soft/no landing” pivoted during the month from “no” to “soft”, given the sudden banking crisis here in the U.S., and globally with the shotgun marriage of Credit Suisse to UBS. The economic data, however, continued to remain fairly robust, anchored again by a strong labor market, and steady if not somewhat sticky inflation.
The Unemployment Rate for February came in a bit higher than anticipated at +3.6% (versus expectations for +3.4%), as nonfarm payrolls edged up +311k, versus the prior month’s gain of +504k. Average Hourly Earnings ticked up +0.2% MoM (+4.6% YoY), while the Labor Force Participation Rate came in at 62.5%. The January JOLTS Job Openings report came in at 10.8 million, down from the prior month reading of 11.2 million, though still very robust.
Inflationary pressures remain, however they don’t appear to be worsening at this point. February CPI showed a +0.4% MoM rise (down from January’s +0.5% surge), which translates to a 6.0% YoY rise in prices, largely meeting analyst expectations. Most of the increase for the month was attributed to Shelter, with Food price rises a close second. Energy prices fell -0.6% MoM as oil and natural gas prices declined. Core CPI rose +0.5% MoM and +5.5% YoY.
Producer prices fell -0.1% MoM in February with demand for machinery and wholesale vehicles softening. YoY, PPI rose +4.6% (below expectations of a +5.4% gain), while ex-Food and Energy, wholesale prices were flat on the month and up +4.4% YoY.
Despite surging volatility in March associated with the SVB collapse, the Federal Reserve hiked short-term interest rates by 25 basis points at its March 22nd meeting, citing the ongoing battle with inflation as its main focus. Chair Powell and fellow FOMC members continue to muddy the waters with regard to future rate policy, making hawkish comments one day and then sounding more dovish the next. The May 3rd meeting will be important in terms of setting the tone for the balance of the year, with any signs of an end to the current rate hiking cycle likely being met with bullish enthusiasm.
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