US Macro Recap & Outlook May 12th

Introduction

Welcome to our discussion on the US economy. In this article, we'll be taking a measured look at some important recent trends. We'll start by examining the Job Openings and Labor Turnover Survey (JOLTs) data, which has shown a decline in job openings for the past three months. Interestingly, in contrast to this, the economy added more jobs than were expected in April 2023, a positive development that we'll explore further.

Inflation is another key topic we'll be examining, as recent figures show it remains stubbornly high. The Federal Reserve has been trying to combat this with interest rate hikes, and we'll consider their potential impact and what the Fed's actions might signal for the future.

We'll also review the latest GDP growth rate figures, noting a slowdown that could increase the risk of a recession. This is an important context for our final topic: the potential impact of these economic conditions on risk assets, including cryptocurrencies. Lets get into it.

The Labour Market

The recent US JOLTs Job Openings data for March 2023 shows that job openings have been falling for three consecutive months, with 9.6 million job openings, which is back in the range it was in spring 2021. This decline in job openings may be due to increased churn rather than net new demand. The Job Openings and Labor Turnover Survey (JOLTS) provides insights into the health of the employment sector. A rising figure usually indicates a growing economy and lower demand and higher layoffs signaling contracting growth. The recent decline in job openings suggests that the labor market may be experiencing some challenges, potentially impacting overall economic growth and employment opportunities.

The US economy added 253,000 jobs in April 2023, surpassing forecasts of 180,000 and following a downwardly revised 165,000 in March. The unemployment rate fell to 3.4% from 3.5%. Employment continued to trend up in professional and business services, health care, and leisure and hospitality. The strong job gains in the non-farm payroll and the low unemployment rate indicate a robust labor market, defying the impact of the Federal Reserve's rate hikes. This suggests that the US labor market remains resilient, with businesses continuing to hire and create job opportunities. However, it is essential to monitor the potential effects of higher interest rates on the economy and the labor market in the long term.

The impact on risk assets and crypto depends on how investors interpret these mixed signals. If they focus on positive job gains and lower unemployment, they may feel confident about the economy's health and be more willing to invest in riskier assets, including crypto. This could potentially drive up prices. On the other hand, if they're worried about the decrease in job openings and the potential long-term effects of higher interest rates, they may pull back from riskier investments. This could lead to lower prices for risk assets and potentially for crypto.

Inflation heating up

The US Core PCE Price Index MoM, which excludes food and energy, increased by 0.3% in March 2023, the same pace as the previous month. The annual rate, which is the Federal Reserve's preferred gauge to measure inflation, slowed down to 4.6%. This is slightly above market expectations of 4.5% but equal to the 13-month low from December 2022. The current data indicates that US inflation remains resilient despite the Federal Reserve's aggressive tightening path, reinforcing the FOMC's signals that Interest rates. are likely to remain elevated until the end of the year. This suggests that inflationary pressures persist, which could impact consumer spending, business investment, and overall economic growth.

The US core inflation rate, which excludes volatile food and fuel expenses, increased by 5.5% year-over-year (YoY) in April 2023. On a month-over-month (MoM) basis, the core consumer price index rose by 0.4%. These figures indicate that inflation remains elevated, even when excluding the more volatile components of the Consumer Price Index. The persistence of high core inflation could impact consumer spending, economic growth, and the Federal Reserve's decisions on interest rates in the future.

The reports show that inflation is still high. Inflation is when the cost of goods and services goes up over time, and right now, it's higher than what people were expecting. The high core inflation rate, which also leaves out food and fuel costs, confirms that inflation is still a problem. It's gone up by 5.5% over the past year and increased by 0.4% from March to April 2023. This ongoing high inflation could continue to affect consumer spending, economic growth, and future decisions about interest rates by the Federal Reserve.

The US economy

The recent US GDP growth rate for the first quarter of 2023 is 1.1%, according to the "advance" estimate. This is a decrease from the 2.6% growth rate in the fourth quarter of 2022. The slowdown in GDP growth may increase the risk of recession and create headwinds for the US economy.This could lead to reduced capital available for business spending and investment, potentially affecting risk assets negatively. Additionally, the turmoil in the banking system has underscored the vulnerabilities of an economy facing a rapid rise in interest rates in a short period of time, which may further impact risk assets.

The Federal Reserve recently raised interest rates by a quarter percentage point, taking the Fed funds rate to a target range of 5%-5.25%. This marks the 10th interest rate increase in just over a year. The decision was unanimous and widely expected by the markets. The rate hike aims to address persistently high inflation and stronger-than-expected economic activity. However, the Fed has hinted that this may be the final move in the current tightening cycle, suggesting that further rate hikes may not be necessary. This could indicate that the central bank is adopting a more cautious approach in determining additional hikes, considering factors such as the ailing banking sector and potential dissent from more cautious voting members. Risk assets, like crypto, could drop in value if the economy slows down and investors become more mindful and uncertain about the future.

Outlook

This is a bit of a mixed bag for the economy. On one hand, the decrease in job openings could indicate some potential instability in the job market. On the other hand, the robust job gains and decrease in unemployment show that the economy is still doing well despite these uncertainties. The slower growth in the economy, potential for a recession, and problems in the banking sector could be seen as bad news for riskier assets. The future outlook for the US economy is uncertain, with risks of a recession increasing due to factors such as persistent inflation, Federal Reserve hawkishness, fallout from the banking crisis, and recent trends in consumer spending and business investment

Risk assets could face challenges in this environment, as the economy confronts these headwinds and experiences weak real GDP growth . The increased probability of a US recession and better-than-expected growth in China and Europe may put further downward pressure on the US dollar. However, the resilient nature of the US economy, as well as some offsetting factors, could limit the downturn in economic activity.

The next few months will be dependant on the Federal Reserve and if they continue to raise rates. The market is pricing in no more rate hikes and 75bps cuts for the remainder of 2023. Im not sure about what the market is pricing in. It is possible that they will stop hiking rates but this will be completely dependant on the upcoming data for the next 3 weeks. If it seems that inflation is still at 5% but the job market is strong, the Federal Reserve will continue to hike rates.