United States Macro recap & Outlook

Producer Price Index (PPI)

For March, the main PPI number is expected to be +3.0% compared to last year, which is lower than the 4.6% seen in February. This decrease is primarily because of better energy prices. The core PPI, which does not include energy and food prices, is also expected to be lower in March, at +3.4% compared to last year, down from February's 4.4%. This would be good news.

At the wholesale level, inflation in the United States decreased in March. The yearly price increase dropped significantly to 2.7% from a predicted 3.0%, which is the lowest inflation rate since January 2021.

Looking at the monthly price changes, the PPI fell by 0.5% in March. This drop was mainly because of lower prices for goods, especially energy. Prices for fresh and dry vegetables also went down, as did the cost of some services. On the other hand, prices increased for things like light motor trucks, chicken eggs, and meats. The Core PPI, which does not include the more unpredictable food and energy prices, went down 0.1% for the month. For the last 12 months, the core PPI increased by 3.4%, which aligns with its predictions.

Consumer Price Index (CPI)

In a recent report, the CPI increased by 0.1% on a month-on-month basis, which is less than the 0.2% that was predicted. Compared to a year ago, the CPI rose by 5%, slightly less than the 5.1% estimate.

There was some related news where a top economist, Ed Hyman, said the Federal Reserve should pause because the United States might already be headed for a difficult economic situation.

When we take out food and energy prices, which can change a lot, the core CPI increased by 0.4% in a month and 5.6% over a year, which is what experts expected.

The information in the report shows that even though the increase in prices is higher than what the Federal Reserve thinks is good, it is slowing down. The Federal Reserve aims for a 2% inflation rate because they believe this is a healthy level for the economy to grow. The yearly increase in the CPI was the smallest since June 2021.

There was a 3.5% decrease in energy costs and no change in food prices, which helped control the overall price increase. The cost of food at home decreased by 0.3%, the first drop since September 2020. However, it is still 8.4% higher than a year ago. The price of eggs, which had been going up significantly, fell by 10.9% in one month. Over the past year, egg prices have increased by 36%.

The cost of housing, or shelter, increased by 0.6%, the smallest increase since November. However, the prices are still 8.2% higher than a year ago. Shelter is essential to the CPI because it makes up about one-third of the total weight, and Federal Reserve officials are keeping a close eye on this area.

Unemployment

Last week, more Americans than expected applied for unemployment benefits, which means they lost their jobs and need financial help. This shows that the job market is slowly improving as higher borrowing costs make it harder for people to spend money in the economy. Even though the job market and inflation are not slowing down quickly, the Federal Reserve might still raise interest rates again next month.

The number of people applying for unemployment benefits went up by 11,000 to 239,000 in the week ending on April 8. Experts thought there would only be 232,000 claims for that week. The number of people applying for benefits without adjusting for seasonal factors increased by 27,457 to 234,577 last week. More people were applying for benefits in California, New Jersey, Pennsylvania, Texas, New York, and Connecticut. However, the number of people applying for benefits went down in Ohio.

The government revised the data from last year and found that more people applied for benefits this year than they thought before. This matches the fact that there have been many layoffs in the technology industry and other areas affected by interest rates. However, the number of claims is still below 270,000. If it goes above this level, it would mean the job market is getting worse. The job report from last Friday showed that fewer jobs were created in March, but the job market is still growing.

The number of job openings fell below 10 million at the end of February for the first time in almost two years. But there were still 1.7 job vacancies for every person who was unemployed that month, which could make it easier for some people who lost their jobs to find new ones. The number of people getting benefits after their first week of unemployment decreased by 13,000 to 1.810 million during the week ending April 1. This number is close to the record low levels before the pandemic. So far, there are no signs that the two regional banks' failure last month caused people to lose their jobs because of tighter credit conditions.

Outlook

Financial markets are betting that the Fed will increase rates by another 25 basis points during their meeting on May 2-3, as shown by the CME Group's FedWatch tool. This increase might be the last one in the Fed's quickest campaign to make borrowing money more expensive since the late 1980s.

The Fed's decision will incorporate a final piece of inflation data: next week's PCE report. Personal Consumption Expenditures (PCE) is a measure of inflation. PCE is a measure of the total amount of money households spend on goods and services, and it is a critical component of a country's GDP.

The PCE index includes spending on durable goods, which are goods expected to last for at least three years, such as cars and appliances, and nondurable goods, which are goods expected to last for less than three years, such as food and clothing. It also includes spending on healthcare, education, and transportation services. PCE is an essential indicator of economic activity, reflecting households' demand for goods and services. The PCE index might be the best metric for inflation because FED uses the PCE price index as its preferred measure of inflation for monetary policy. This is because the PCE price index is considered a more comprehensive measure of the overall price changes of goods and services.

This will be the final rate hike for the US. What I'm not entirely sure of is that inflation has cooled off. With gas and oil prices rising by 20% due to the recent OPEC supply cuts, energy prices could increase. These prices could significantly affect the next wave of inflation data. While I still don't think the Macro looks good, asset prices are trading much higher. There is a strong bid in the market. As long as this bid continues, I see no reason not to be slightly bullish on asset prices.