{"id":191374,"date":"2023-06-05T10:30:00","date_gmt":"2023-06-05T14:30:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=191374"},"modified":"2023-06-05T10:39:49","modified_gmt":"2023-06-05T14:39:49","slug":"economic-update-june-5-2023","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-june-5-2023\/","title":{"rendered":"Economic Update: June 5, 2023"},"content":{"rendered":"\n

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

Real GDP grew by a 1.3% 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 3.8% and 5.2%, 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 May Jobs report highlighted continued momentum in the labor market, but divergent results from the household and establishment surveys warrant some skepticism toward the strong headline figures. Nonfarm payrolls rose by a stronger than expected 339K, while upward revisions to March and April helped strengthen the report. That said, the household survey looked weaker, as the number of employed people fell by 310K and the unemployment rate rose to 3.7%. Wage growth continued to moderate from its peak, rising by 4.3% y\/y. Overall, recent data suggests that the labor market is softening and inflation is still easing. As such, this report should not change the Fed\u2019s plan to pause in June.<\/p>\n\n\n\n

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

The end of the 1Q23 earnings season is approaching, and results continue to look better than expected. With 489 companies having reported (98.0% of market cap), our current estimate for 1Q23 operating earnings per share is $52.77. If realized, this would represent y\/y growth of 6.9% and q\/q growth of 4.8%. So far, 69% of companies have beaten earnings expectations, while 66% have beaten revenue expectations. Importantly, profit margins bounced in 1Q23, with our current estimate tracking 11.7%.<\/p>\n\n\n\n

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

Inflation temporarily bounced in April, with headline and core CPI both rising by 0.4%, bringing y\/y gains to 4.9% and 5.5%, respectively. Shelter remained the largest contributor, although owners\u2019 equivalent rent increased at a softer pace, while used vehicle and gasoline prices also contributed. However, the Manheim Used Vehicle Index fell in April, suggesting that the upwards pressure from used cars will be temporary. Similarly, PCE held firm with both the headline and core measures rising by 0.4% m\/m. Overall, this report should not change the Fed\u2019s plan to pause tightening. The disinflationary trend remains well established, as April marked the 10th consecutive month of slower y\/y inflation, and y\/y headline CPI could fall to 3.5% by June.<\/p>\n\n\n\n

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

At its May meeting, the FOMC voted unanimously to hike rates by 0.25% to a range of 5.00%-5.25%, the highest level since June 2006. Since the first meeting of the year, statement language on policy has shifted from \u201congoing increases will be appropriate\u201d to a more data-dependent approach, hinting that the Committee is ready to pause rate increases but maintains the willingness to hike further if economic conditions warranted. Powell continued to push back against the idea of rate cuts later this year as the Committee expects inflation will fall more slowly than what markets anticipate.<\/p>\n\n\n\n

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