The Astor Economic Index® (AEI) ended the month of February at around average growth once again, with a tight labor market slightly ameliorated by weakening signs of consumer demand. We talk about the latest job reports, inflation, and the upcoming Fed meeting below.
Non-farm payrolls rose 275,000 in February, above Bloomberg consensus of 200k, with U3 unemployment rising slightly to 3.9% as more people entered the labor market. Hiring was seen in health care and government services. Interestingly, the prior two months were revised downwards by a nontrivial 167,000. Jobless claims, which measure the number of workers applying for unemployment benefits, remained contained at 209,000, and previous levels were revised downwards. Meanwhile, consumer spending seems to have cooled slightly, with retail control-group sales flat m/m, and previous months revised downwards.
We highlighted in the past the potential for the last mile of inflation normalization to be proven stubborn. The latest reading of CPI will do little to dispel that possibility, with headline and core up 0.4% m/m, or 3.2%/3.8% y/y. Goods, which have been a strong source of disinflation to date, rose 0.1% m/m, led by used cars. Core services, which are a stronger source of inflation post-Covid, were up 0.28% m/m. Elsewhere, PPI, which measures the prices paid by producers, rose sharply, up 0.6% m/m. In sum, there is little sign of inflation durably moving towards the Fed’s target.
Overall, the latest data is something of a conundrum for the Federal Reserve. The Fed has rightly forecast three cuts in 2024 – a far cry from the market’s original forecast of six cuts, and which rate markets are finally reflecting. In our view, the labor market is much too tight for the Fed to seriously consider cuts in the first half of this year, and inflation is coming down quite slowly. On the other hand, there are incipient signs of consumer slowing. To some extent this may be desirable, with the consumer driving demand and thus inflation. The risk, of course, is that the Fed finds it impossible to thread the needle between bringing prices down and a cooling economy, and thus tilts the economy into recession. We expect the Fed to leave policy on hold for the time being.
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The Astor Economic Index®: The Astor Economic Index® is a proprietary index created by Astor Investment Management LLC. It represents an aggregation of various economic data points. The Astor Economic Index® is designed to track the varying levels of growth within the U.S. economy by analyzing current trends against historical data. The Astor Economic Index® is not an investable product. The Astor Economic Index® should not be used as the sole determining factor for your investment decisions. The Index is based on retroactive data points and may be subject to hindsight bias. There is no guarantee the Index will produce the same results in the future. All conclusions are those of Astor and are subject to change. Astor Economic Index® is a registered trademark of Astor Investment Management LLC.
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