April’s economic data suggested a slowdown in the U.S. economy is underway, although one marked by “full employment,” a generally healthy consumer, and somewhat sticky inflation.  The odds of ‘higher for longer” with regard to short-term interest rates have risen, as has the probability of some sort of soft landing, as opposed to a deep recession.

The Unemployment Rate in March came in as expected at 3.8%, down slightly from the prior month, while weekly Initial Jobless Claims held steady around 210k.  The JOLTS data for March saw a decline in Job Openings from 8.7 million to 8.5 million.  Average Hourly Earnings rose +0.3% in March, and are up 4.1% YoY. The Labor Force Participation Rate edged up +0.2% to 62.7%.

At the consumer level, Personal Incomes rose +0.5% in March, while Personal Spending edged up +0.8%, more than expected.  Retail Sales advance a higher-than-forecast +1.1% on the month.  The April U of Michigan Sentiment Index fell slightly MoM to 77.2, while the Conference Board’s Consumer Confidence survey missed expectations, coming in at 97.0.

Persistent inflation remains the challenge for the Fed and markets alike.  The Consumer Price Index rose +0.4% in March, for a +3.5% YoY increase.  Ex Food & Energy, prices rose +0.4% MoM and +3.8% YoY.  At the wholesale level, price gains were more moderate, with the Producer Price Index rising +0.2% MoM and +2.1% YoY, while Core PPI gained +0.2% MoM and +2.4% YoY.  The Fed’s preferred measure, the PCE Deflator, rose +0.3% in March, and is up +2.7% YoY.

The latest FOMC confab concludes today and it’s widely expected they will leave short-term interest rates unchanged.  The market will be watching for signals that rate cuts are on the horizon; however the data thus far suggest a longer-term pause is more likely.  Volatility has picked up as investors recalibrate when that first rate cut may be.

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