{"id":187860,"date":"2023-04-03T10:00:00","date_gmt":"2023-04-03T14:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=187860"},"modified":"2023-04-03T09:55:55","modified_gmt":"2023-04-03T13:55:55","slug":"economic-update-april-3-2023","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-april-3-2023\/","title":{"rendered":"Economic Update: April 3, 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 4Q22 earnings season highlighted the challenges that higher rates and input costs, combined with lower consumer spending and a strong dollar, impose on all companies. However, it also revealed important distinctions among companies in weathering these headwinds. 4Q22 EPS declined by 11.4% y\/y and 0.2% q\/q. In total, 62% of companies beat earnings expectations, while 55% beat revenue expectations. Management commentary across sectors highlighted that higher input costs and a stronger dollar negatively impacted results. Notably, margin contraction was the largest detractor in earnings while revenue grew modestly.<\/p>\n\n\n\n

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

The February CPI report saw headline CPI rise by 0.4% m\/m and 6.0% y\/y, marking an eighth consecutive monthly decline for the year-over-year measure, while core CPI rose by 0.5% m\/m and 5.5% y\/y. Shelter inflation remained strong, although continues to reflect lagged rent inflation. That said, other measures of services saw disinflation. Headline and core PCE inflation both rose by 0.3% m\/m, a deceleration compared to last month for both indices. While not falling as fast as the Fed would like, inflation is gradually falling and continued moderation in wage growth increases our confidence that year-over-year headline CPI will fall to 4% or lower by June of this year.<\/p>\n\n\n\n

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

At its March meeting, the FOMC hiked rates by 0.25% to a range of 4.75%-5.00%. The statement language and press conference were somewhat dovish, acknowledging the potential implications of banking turmoil on the economic outlook but also the need for further progress on inflation. The Fed notably downshifted the phrase \u201congoing increases in the target range\u2026\u201d to \u201csome additional policy firming may be appropriate,\u201d signaling a near end to tightening. The median rate expectation for year-end was unchanged at 5.1%. Updates to the Fed\u2019s economic projections reflected a more dovish picture of slower growth, lower unemployment and slightly higher inflation.<\/p>\n\n\n\n

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