Market Week: April 10, 2023

The week in review

  • Trade balance widened to -$70.5 billion
  • Construction spending decreased -0.10% m/m

The week ahead

  • CPI
  • Retail sales
  • PPI

Thought of the week

The U.S. economy started 2023 strongly, with many analysts tracking positive real GDP growth for 1Q23. However, as we show in this week’s chart, since late March, the economic data have disappointed and are pointing toward waning momentum in the U.S. economy. As such, the Atlanta Fed’s GDPNow model is currently forecasting 1Q23 GDP growth of 1.5% (SAAR), down from its peak estimate of 3.5% in March.

Last week, the March ISM manufacturing and services PMIs provided a timely read on the outlook for growth. The headline manufacturing reading declined to 46.3, the lowest reading since May 2020, due to decreases in new orders, inventories and employment. Meanwhile, the headline services PMI decreased to 51.2 but remained above the key level of 50, with new orders, business activity and prices seeing notable declines. Switching to the labor market, according to the February JOLTS report, job openings fell 6% to 9.9 million but remain well above the pre-pandemic trend. Furthermore, while total nonfarm quits did increase 3.8% m/m, we have seen a general downward trend in quits since they peaked in late 2021. Meanwhile, Friday’s employment report echoed a similar message. The unemployment rate decreased to 3.5% in March, well below the long-term average of 6.2%. However, total nonfarm employment only grew by 236k, a notable deceleration from the prior month, and wage growth decelerated to 4.2% y/y.

Looking ahead, the question will be whether the Fed interprets these data points as meaningful evidence of economic cooling as they fight to bring inflation back down to 2%. That determination will dictate the forward path of monetary policy, which at a minimum could stay tighter for longer than the market expects.

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