6/30 - Weekly Economic Highlights

On Wednesday Federal Reserve Chairman Jerome Powell at the ECB forum in Portugal signaled more tightening will be required to rein in inflation and was open to two straight rate hikes at coming meetings. In addition to comments from the Fed chief, financial markets received a lot of economic data this week inclusive of a key gauge of US inflation. The Personal Consumption Expenditures (PCE) Index rose 3.8% year-over-year in May, which was in line with expectations but the lowest annual advance in more than two years. Excluding food and energy, the core PCE price index, the Federal Reserve’s (Fed) preferred inflation gauge, decelerated to 4.6%, which was below consensus expectations of 4.7%.

Economic resilience was supported by data released earlier this week. Consumer confidence reached the highest level since the beginning of 2022, durable goods orders surged, and new home purchases climbed at the highest annual rate in more than a year. Consumer confidence rose 7.2 points to 109.7, the highest level since January of 2022. Durable Goods Orders increased for the third straight month at 1.7%, significantly beating survey expectations of -0.9% and purchases of new single-family homes increased 12.2% to an annualized pace of 763,000 units in May. The Case-Shiller 20-City Composite Home Price Index posted a small annual decline of 1.70% in April, but on a month-over-month basis, price gains continue to outpace expectations.

Additional data released this week included the third estimate for first quarter US GDP growth which was revised up significantly to 2.0% from 1.3%. The report reflected higher revisions to household spending, consumer spending and exports.

The University of Michigan Consumer Sentiment index improved to 64.4 in June, up from 63.9 in May. Consumers inflation expectations are 3.3% for the coming year, in-line with last month’s number. The 5-year measure, a closely watched indicator for the Fed was in-line with expectations as well at 3.0%.

Signs of economic resilience as well as hawkish comments made by Fed Chair Powell resulted in treasury yields moving higher this week; the 2-year treasury is up 12 basis points to 4.87% after starting the week at 4.75%, and the 10-year is up 11 basis points to 3.83% as of Friday morning. The yield inversion between the 2-year and 10-year treasury widened slightly, ending the week at approximately 104 basis points. In a holiday shortened week next week, market participants will turn their attention to the manufacturing and services sector as well as employment data which will be released on Friday. Although the Chandler Team believes the Fed is quickly approaching a sufficiently restrictive level, given the recent signs of economic resilience and after a pause at their June meeting, we believe the FOMC will likely resume raising rates again at their meeting next month but leave their optionality open based upon incoming data.

Next Week:

S&P Global US Manufacturing PMI, ISM Manufacturing, Factory Orders, Durable Goods Orders (May Final), FOMC Meeting Minutes, JOLTS Job Openings and Labor Turnover Survey, S&P Global US Services PMI, ISM Services, ADP Employment Change, Employment Report

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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.