Weekly Market Update
Inflation has improved significantly after peaking in 2022, but recent hotter than expected readings have stalled the progress lower.
Inflation Progress Stalls
Wholesale Inflation Better Than Feared
Continuing Unemployment Claims Top 1.8 Million
Latest on Small Business Optimism…Or Lack Thereof
Inflation Progress Stalls
March's Consumer Price Index (CPI) report showed higher-than-expected inflation, with the headline reading up 0.4% from February. On an annual basis, CPI moved in the wrong direction, rising from 3.2% to 3.5%. The Core measure, which excludes volatile food and energy prices, increased 0.4%, while the annual reading remained at 3.8%.
What’s the bottom line? March’s hotter than expected consumer inflation report continues a trend we’ve seen in recent months, as rising energy and shelter costs have added to pricing pressure.
Price stability is part of the Fed’s dual mandate. When inflation became rampant a few years ago, the Fed began aggressively hiking their benchmark Fed Funds Rate (the overnight borrowing rate for banks) to slow the economy and rein in inflation. While inflation has fallen considerably after peaking in 2022, the progress lower has slowed, which could delay the Fed’s timing for rate cuts this year.
Given that maximum employment is the other part of the Fed’s dual mandate, a cooling job market with rising unemployment could pressure them to cut the Fed Funds Rate sooner rather than later. However, the overall strength of March’s Jobs Report, including the falling unemployment rate, will likely not add any pressure to their timeline.
Jump in ADP Job Numbers
ADP’s Employment Report showed that private payrolls rose more than expected in March, led by a huge boost from the leisure and hospitality sector. Employers added 184,000 new jobs versus the 148,000 that had been forecasted, while job growth in February was also revised higher by 15,000 jobs. Growth among small businesses remained muted, however, as businesses with fewer than 50 employees only added 16,000 jobs.
What’s the bottom line? ADP noted that “last month saw the biggest jump in hiring since July,” with strong gains across all industries except professional services, where hiring fell.
Chief Economist Nela Richardson added that “inflation has been cooling, but our data shows pay is heating up in both goods and services.” On that note, annual pay gains for job stayers were flat at 5.1% after months of steady deceleration. The average increase for job changers “rose dramatically” from 7.6% in February to 10% last month, marking the second consecutive gain.
Wholesale Inflation Better Than Feared
The Producer Price Index (PPI) rose 0.2% in March, just below estimates. On an annual basis, PPI increased from 1.6% to 2.1%, which was better than the 2.2% estimate. Core PPI, which strips out volatile food and energy prices, was in line with forecasts at a 0.2% rise.
Continuing Unemployment Claims Top 1.8 Million
Initial Jobless Claims fell by 11,000 in the latest week, but Continuing Claims surged higher by 28,000, with 1.817 million people still receiving benefits after filing their initial claim.
Latest on Small Business Optimism…Or Lack Thereof
The National Federation of Independent Business (NFIB) Small Business Optimism Index fell to 88.5 in March, the weakest reading since December 2012. Business owners are facing numerous economic headwinds, with inflation being a top concern.
WHAT TO LOOK FOR THIS WEEK
We’ll kick off the week Monday with an update on home builder sentiment for this month. Tuesday brings news on March’s Housing Starts and Building Permits, while Existing Home Sales data follows on Thursday.
We’ll also get an update on March’s Retail Sales and the latest manufacturing data for the New York region on Monday. Jobless Claims and manufacturing for Philadelphia will be reported Thursday.
TECHNICAL PICTURE
After last Wednesday’s sharp decline due to the higher-than-expected CPI numbers, Mortgage Bonds were able to bounce higher off support at 99.647 on Friday. The 10-year ended last week trading at around 4.52%. While this is still high, it’s an improvement from highs hit earlier in the week.
