2/10 - Weekly Economic Highlights

Although economic data was relatively light this week, numerous members of the Federal Reserve including Fed Chief Powell were consistent in their messaging this past week regarding the need for additional rate increases to curtail inflation. Another consistent theme among all Fed members interviewed this week was the strength of last week’s labor market report showing employers added 517,000 workers in January and an unemployment rate of 3.4%, the lowest rate since 1969. Chair Powell in a moderated discussion at the Economic Club of Washington, D.C. referenced the employment report, stating that “it shows you why we think this will be a process that takes a significant period of time.” In addition, Federal Reserve Bank of New York President John Williams at a Wall Street Journal event in New York referenced wage growth, which is above levels necessary to reach the Federal Reserve’s 2% goal for inflation.

The University of Michigan Consumer Sentiment index moved up to 66.4 in early February, higher than the survey of economist’s expectations and up from 64.9 in January. Consumer inflation expectations in February also moved higher; the 1-year measure was 4.2% in February up from 3.9% in January, and the 5-year measure was unchanged from the prior month at 2.9%. The survey showed 42% of consumers expect increases in unemployment in the coming year, up significantly from a year ago when the future unemployment expectation gauge was only 25%. Elevated concerns regarding unemployment could result in reduced consumer spending in the months ahead.

U.S. Consumer credit was also released this week reflecting the smallest increase since January of 2021. Of note, the revolving credit outstanding component which includes credit cards climbed $7.2 billion, the smallest increase since August of 2021. Although these numbers reflect a decline of consumer use of credit cards and other loan types, many US consumers continue to struggle with higher prices, and according to the US Census Bureau Survey, one in three households reported using credit cards or loans to meet their spending needs in January.

Treasury yields moved higher this week; the 2-year treasury is up 19 basis points to 4.49% after starting the week at 4.30%, and the 10-year is up 16 basis points to 3.69% as of Friday morning. In addition, the yield inversion increased slightly between the 2-year and 10-year treasury to 80 basis points. The Chandler team continues to believe the FOMC will tighten monetary policy to a restrictive stance and hold rates at that level for a period of time. In this challenging environment we continue to remain disciplined with our strategies and take advantage of higher rates to invest into our clients’ portfolios.

Next Week:

Consumer Price Index (CPI), Retail Sales, Industrial Production & Capacity Utilization, Building Permits, Housing Starts, Philadelphia Fed, Producer Prices Index (PPI), Leading Indicators (LEI).

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© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.