3/31 - Weekly Economic Highlights

Financial market volatility eased as participants took a breather from the hectic pace that occurred over the last few weeks. Markets digested a key gauge of US inflation, the Personal Consumption Expenditures (PCE) Index which rose 5% year-over-year in February, an improvement over January’s report. Excluding food and energy, the core PCE price index, the Federal Reserve’s (Fed) preferred inflation gauge, climbed 4.6%, matching the smallest increase since October 2021. Recent inflation data suggests tighter monetary policy by the Fed is working to bring down inflationary pressures. The Fed is likely to remain steadfast in its campaign to achieve its 2% inflation goal but market participants remain split as to the possibility of an additional rate hike at their May 3^rd meeting.

Meanwhile, national home prices fell 0.6% in the month of January and were up 2.6% year-over-year according to data from S&P CoreLogic Case-Shiller. Prices in January were still higher year-over-year but the pace of gains has cooled and prices are down 6.8% from the high reached last June. Not all cities have experienced year-over-year price increases. Prices declined 7.6% in San Francisco, -5.1% in Seattle, -1.4% in San Diego and -0.5% in Portland. Higher mortgage rates are one factor leading to weaker housing prices. The average Freddie Mac 30-year mortgage rate dipped to 6.24% this week but is well above the 4.67% rate a year ago. The Conference Board’s Consumer Confidence index unexpectedly increased to 104.2 from 103.4 in February. The data released included the impact from the Silicon Valley Bank failure and suggests the latest financial turmoil is having little immediate impact on consumer confidence. While high inflation and recession concerns remain top of mind for many consumers, the strong labor market and low unemployment continue to support the strength in Consumer Confidence.

Bond yields continued to be impacted by incoming economic data. The 2-year treasury yield trended higher to 4.07%, the 5-year increased to 3.62%, and the 10-year declined to 3.50% (as of this morning). The inversion between the 2-year and the 10-year treasury widened to 57 basis points. All eyes turn toward the labor market next week. So far, the labor market has remained resilient in the face of rapid hikes in the federal funds rate by the Fed. We continue to navigate markets and remain disciplined to our strategies, looking for opportunities while focusing on our clients’ investment objectives of safety, liquidity, and return.

Next Week:

Durable Goods Orders, Factory Orders, Institute of Supply Management (ISM) Manufacturing Index, Institute of Supply Management (ISM) Services Index, S&P US Manufacturing Purchasing Managers Index, US Labor Report, Wards Total Vehicle Sales

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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. The S&P Corelogic Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the nation.