{"id":189569,"date":"2023-05-01T09:30:00","date_gmt":"2023-05-01T13:30:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=189569"},"modified":"2023-05-05T12:17:55","modified_gmt":"2023-05-05T16:17:55","slug":"economic-update-may-1-2023","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-may-1-2023\/","title":{"rendered":"Economic Update: May. 1, 2023"},"content":{"rendered":"\n

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

Real GDP grew by a 1.1% annualized rate in 1Q23, a sharp deceleration compared to last quarter\u2019s 2.6% pace. Consumption and government spending looked strong, growing at annualized rates of 3.7% and 4.7%, respectively. However, most of the consumption gains can be attributed to a strong January. These gains were partially offset by declines in private inventories and residential fixed investment. In particular, equipment spending fell sharply, indicating a slowdown in business investment spending. Looking ahead, normalizing inventory levels should support growth, but a strained consumer, tighter lending conditions and weaker business spending remain headwinds in the coming months.<\/p>\n\n\n\n

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

The March Jobs report highlighted a labor market that remains tight but is losing momentum. Nonfarm payroll employment rose by 236K, a sharp deceleration compared to last month, while the unemployment rate slipped below consensus to 3.5%. Average hourly earnings grew by 0.3% m\/m and 4.2% y\/y, signaling easing inflationary pressures. Overall, this report confirms that the economy, while gradually losing momentum, was not in a recession in the first quarter. However, the question remains whether or not the labor market is cooling as fast as the Fed would like.<\/p>\n\n\n\n

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

So far, the 1Q23 earnings season has been better than expected. With 265 companies having reported (65.3% of market cap), our current estimate for 1Q23 operating earnings per share is $51.00. If realized, this would represent y\/y growth of 3.3% and q\/q growth of 1.3%. So far, 71% of companies have beaten earnings expectations, while 65% have beaten revenue expectations. Importantly, profit margins bounced in 1Q23, with our current estimate tracking 11.5%.<\/p>\n\n\n\n

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

The March CPI report was cooler than expected with headline CPI rising by 0.1% m\/m and 5.0% y\/y, marking the smallest year-over-year increase since May 2021, while core CPI rose by 0.4% m\/m and 5.6% y\/y. Moderating food and energy prices weighed on the headline print with food at home falling by 0.3% m\/m and energy declining by 3.5% m\/m. Shelter inflation more than offset these declines and remained the largest contributor. However, it slowed compared to last month. Similarly, headline PCE eased to 0.1% m\/m while core PCE remained at 0.3% m\/m. Overall, this report suggests that headline CPI should fall below 4.0% y\/y by June.<\/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…\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’s 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