US Economy March 2023

February was a turbulent month for the markets, with all three indexes ending down for the month after solid gains in January. Investors were trying to come to grips with prospects the Fed will not start cutting rates this year unless unemployment ticks up and inflation cools off more.

Consumer Spending Rises 1.8%
Consumer spending jumped 1.8% in January to the highest level since March 2021 and spending for December was revised  to show a 0.1% decline rather than the 0.2% first reported. Core consumer spending rose 1.1% after falling in December and November. Spending on goods jumped 2.8% and spending on services rose a strong 1.3%. The overall surge in spending came as wages and salaries jumped 0.9%. An 8.7% cost of living adjustment, the biggest increase since 1981, for more than 65 million Social Security beneficiaries offset a drop in government benefits. With personal income rising 0.2%, the smallest gain since April, the outlook for spending is uncertain. Wages rose 0.3%, matching November's increase. Consumers increased savings as well, with the saving rate rising to 4.7%, the highest in a year, from 4.5% in December.
 
Consumer Prices Rise 0.5%
The Consumer Price Index (CPI) rose 0.5% in January after rising 0.1% in December. Consumer prices were up 6.4% year over year after being up 6.5% in December. It was the seventh consecutive month that year-over-year inflation has cooled down. Shelter, food, natural gas and gasoline all contributed to the increase. Core inflation, which excludes the volatile food and energy categories, rose 0.4% in January but dropped to 5.6% on an annual basis from 5.7% in December. The personal consumption expenditures (PCE) price index shot up 0.6% in January, the largest increase since June 2022, after gaining 0.2% in December. In the 12 months through January, the PCE price index accelerated 5.4% after rising 5.3% in December.
Excluding the volatile food and energy components, the PCE price index increased 0.6%. That was the biggest gain since August 2022 and followed a 0.4% rise in December.
 
Consumer Confidence Falls to 102.9

• The New York-based Conference Board’s Consumer Confidence Index fell to 102.9 in February after falling to a downwardly revised 106.0 in January.*
• The Present Situation Index rose to 152.8 in February after rising to an upwardly revised 151.1 in January. It was the highest reading for the PSI in ten months.
• The Expectations Index, based on short-term outlooks for income, business and labor market conditions, tumbled to 69.7 in February after falling to a downwardly revised 76.0 in January. A level around 80 indicates consumers expect a recession.
• In May 2020 Consumer Confidence was 120.0 but fell to 86.9 at the onset of the pandemic in March 2020.

*A level of 90 indicates that the economy is on solid footing; a level of 100 or more indicates growth. Analysts caution that the real driver behind consumer spending is income growth and that labor market trends are a more accurate predictor of consumer behavior.

Unemployment Rises to 3.6%

• The unemployment rate rose to 3.6% in February after falling to 3.4% in January. Economists had expected the rate to hold steady. Unemployment was 3.5% at the beginning of the pandemic in March 2020.
• The economy added 311,000 new jobs*, above expectations but well below the downwardly revised 504,000 new jobs added in January.
• Wage growth slowed, rising 0.2% compared to the 0.3% increase in January. Wages were up 4.6% on an annual basis, up from 4.4% Y/Y in January.
• Monthly job gains over the last six months have averaged 343,000 new jobs, well above the 250,000 new jobs needed each month to maintain the economy.

 
Chicago PMI Falls to 43.7
The Chicago PMI fell to 43.6 in February after falling to 44.3 in January. The decline left the index further below 50, the level that signifies expansion. Economists had expected the PMI to rise into the 45+ range. A PMI number above 50 signifies expanded activity over the previous month; this was the sixth consecutive reading below 50, the level which indicates contraction. Looking back to when the series began in 1967, the PMI has ranged from 20.7 in June 1980 to 81.0 in November 1973.      
 
Wholesale Prices Rise 0.7%
The Producer Price Index (PPI) jumped 0.7% in January after falling  0.5% in December and was up 6.0% year over year after being up 7.3% in December. Stripping out volatile food and energy prices, core PPI rose 0.5% in January after inching up just 0.1% in December and was up 5.4% year over year, down from 5.5% in December. The PPI peaked at a whopping 11.7%
year-over-year increase in March 2022.
 
Q4 GDP Rises 2.7%
Q4 GDP was revised down to 2.7% growth from the 2.9% first reported, according to the second reading from the Commerce Department. GDP rose 3.2% in the third quarter. The downward revision primarily reflected slower consumer spending than first reported. For all of 2022, GDP expanded 2.1% after growing 5.9% in 2021. The personal consumption expenditures price index, (PCE)  the Fed's preferred gauge, advanced at a seasonally adjusted annual rate of 3.7% from Q4, a substantial upward revision from the first reading of 3.2%. Core PCE, which strips out food and energy costs, was revised up to a 4.3% increase from an initial estimate of 3.9%. The Fed targets a 2% inflation rate. The Fed would like to see the economy cool off more before they ease up on interest rate increases.

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