{"id":186580,"date":"2023-03-13T10:45:00","date_gmt":"2023-03-13T14:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=186580"},"modified":"2023-03-13T10:51:10","modified_gmt":"2023-03-13T14:51:10","slug":"economic-update-march-13-2023","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-march-13-2023\/","title":{"rendered":"Economic Update: March 13, 2023"},"content":{"rendered":"\n

Growth<\/h2>\n\n\n\n

4Q22 real GDP showed the economy grew by a 2.7% annualized rate and 0.9% for the calendar year, even with the economy contracting for two consecutive quarters in the first half. While the overall print looked solid, the underlying details still point to a weakening economy. More than half of the GDP gain came from an increase in inventory accumulation (a trend that will inevitably be reversed), real consumer spending was softer than expected and residential investment plunged further. Looking ahead, boosts in real personal income, pent-up demand for autos and a very tight labor market should keep growth afloat, but very modest, in the year ahead.<\/p>\n\n\n\n

Jobs<\/h2>\n\n\n\n

The February Jobs report highlighted solid gains in payroll employment but other details were softer than expected. Nonfarm payroll employment rose by 311K, well above consensus estimates of 223K, however, gains for the prior two months were revised down by 34K and the unemployment rate rose above consensus to 3.6%. Average hourly earnings were also below consensus, rising by 0.2% m\/m and 4.6% y\/y. Overall, the report suggests that the labor market is starting to feel the pressure of tighter policy and provided little evidence that a tight labor market will disrupt the downtrend in consumer inflation.<\/p>\n\n\n\n

Profits<\/h2>\n\n\n\n

The end of the 4Q22 earnings season is approaching, with 499 companies having reported (99.7% of market cap). Our current estimate for 4Q22 earnings per share is $50.26, representing a y\/y decline of 11.4% and a q\/q decline of 0.2%. So far, 62% of companies have beaten earnings expectations, while 55% have beaten revenue expectations. Management commentary across sectors highlighted that higher input costs and a stronger dollar continue to negatively impact results. Notably, margin contraction has been the largest detractor in earnings while revenue has grown modestly.<\/p>\n\n\n\n

Inflation<\/h2>\n\n\n\n

The January CPI report showed an uptick in inflation as headline CPI rose by 0.5% m\/m and 6.3% y\/y, while core CPI rose by 0.4% m\/m and 5.5% y\/y. A bounce in energy prices boosted headline inflation, while higher prices for car insurance, clothing and furniture also contributed. Shelter inflation accounted for nearly half of the monthly increase but continues to lag the turnover in market rents. Elsewhere, core goods inflation remained soft. Headline and core PCE inflation both rose by 0.6% m\/m and accelerated compared to last month. We still believe disinflation is in its early innings, but the path to normal will not be without bumps along the way.<\/p>\n\n\n\n

Rates<\/h2>\n\n\n\n

At its February meeting, the FOMC hiked rates at a reduced pace of 0.25% to a range of 4.50%-4.75%. The statement language and press conference were somewhat dovish, acknowledging that inflation pressures have eased but remain elevated. The committee still sees \u201congoing increases in the target range will be appropriate,\u201d however, exchanged “pace” with “extent” in determining future hikes, suggesting the Fed may be close to being done. That said, the committee still sees a greater risk in not doing enough to bring inflation back down to 2% than overtightening.<\/p>\n\n\n\n

Risks<\/h2>\n\n\n\n