2/9 - Weekly Economic Highlights

In a light week for economic releases, investor sentiment was dominated by Federal Reserve speakers.  

Fed Chairman Jerome Powell reiterated in a 60 Minutes TV interview that the FOMC (Federal Open Market Committee) wants to see more progress on inflation before cutting rates and downplayed chances for the first rate cut in March.  While acknowledging the strength of the U.S. economy and labor market, Powell commented that policymakers want to be confident that inflation will remain sustainably below the FOMC’s 2% target.  In speeches this week, Fed governors Barkin, Collins, Kashkari, and Kugler echoed Powell’s comments suggesting the need for further progress on inflation and setting expectations for rate cuts to begin later this year.  Surprising economic resilience has left policymakers wary of cutting to soon and reaccelerating demand and inflation.  The market pared expectations for the Fed to ease, with futures contracts shifting the highest probability for the first rate cut into the June meeting.

Economic data this week was supportive of the Fed’s view for a delayed rate cut.  The ISM Services Index stayed in expansionary territory for the 13th straight month, rising to 53.4 in January from 50.5 in December.  Steady business conditions were reported across the sector, with faster growth in new orders, employment and supplier deliveries.  The S&P Global PMI US Services Index ended January at 52.5, the best reading since June of last year, providing more evidence of healthy consumer demand for services.  Initial Jobless Claims decreased 9,000 to 218,000 in the week ended February 3rd and Continued Claims fell 23,000 to 1.871 million in the January 27th week, demonstrating further proof of a strong labor market. The Senior Loan Officer Opinion Survey for the fourth quarter was released this week.  This gauge is closely monitored by the Fed to measure restrictiveness of financial conditions.  The survey showed that fewer banks are tightening lending standards and demand is slowly rebounding, which is positive news for banks and the economy.

U.S. Treasury rates rose this week with the growing likelihood of a later Fed ease.  At the time of this writing, the 2-year was up about 12 basis points to 4.48% and the 10-year was up 16 basis points to 4.18%.  Next week investors will be watching important inflation data, housing market indicators, and gauges of consumer health.

NY Fed 1-Year Inflation Expectations, Consumer Price Index, Real Average Weekly Earnings, Producer Price Index, Retail Sales, University of Michigan Sentiment, Monthly Budget Statement, NFIB Small Business Optimism, MBA Mortgage Applications, Empire Manufacturing, Philadelphia Fed Business Outlook, Import Price Index, Export Price Index, Jobless Claims, Industrial Production, Business Inventories, NAHB Housing Market Index, TIC Flows, Housing Starts, Building Permits, NY Fed Services Business Activity

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