February’s CPI Research Notes

by Jim Baird on March 15, 2017

CaptureConsumer Price Index edged higher in February; increased 2.7% over the past year

Consumer prices edged higher in February, as increases in food and service costs outweighed a modest dip in energy prices. The increase of 0.1% for the headline figure was modest, but the Consumer Price Index’s increase of 2.7% over the past year reflects the sizeable increase in energy costs over that period. As recently as last July, the index was still below 1%, so the magnitude of the move in just over six months is noteworthy, though not surprising given the firming in oil prices that occurred.

Core inflation, which excludes the volatile food and energy sectors, also edged higher in February, increasing by 0.2%. Despite that rise, the trailing 12-month rate dipped modestly to 2.2%. Core inflation has remained in a tight range of 2.1 – 2.3% over the past year, largely immune to the upward pressure in headline figures.

With the Fed poised to announce a quarter-point hike in its benchmark funds rate this afternoon, it’s likely that nothing in this report was going to impact that decision. Certainly, with both core and headline inflation above 2% and the Fed’s preferred measure of inflation edging toward the central bank’s target rate as well, it shouldn’t come as a surprise that policymakers would take another incremental step toward returning policy rates to a more normalized level.

The February jobs report along with the ongoing string of positive reports on jobless claims paints a clear picture that labor market conditions have improved considerably in recent years. Certainly, the overall pace of economic growth has been largely disappointing in the aftermath of the great recession, and a return to stronger trend growth has been frustratingly elusive. President Trump’s proposed policies aimed at tax and regulatory reform and infrastructure investment have provided a shot of renewed confidence for the business and consumer sector alike, but the size and shape of actual legislation – let alone the ultimate impact on the economy – remain open questions.

The bottom line is that the economy continues to chug along at a pace sufficient for job creation to continue at a solid pace, lifting prices and pushing the economy toward full employment, while increasing wage growth and sluggish productivity gains raise the specter of higher inflation down the road. With those conditions as the backdrop, it shouldn’t be a surprise that policymakers remain committed to their planned course to gradually raise policy rates or – as evidenced more recently – even accelerate the process.

Market Perspective (March 2017)

by Jim Baird on March 15, 2017

Executive Summary

  • U.S. equities continued their rally in February as volatility remained low. Year to date, the broad market has gained 5.7%.
  • Overseas stocks in both developed and emerging markets also gained ground in February, adding to their positive returns year to date. Emerging markets have returned an impressive 8.7% YTD in U.S. dollar terms.
  • Fixed income indices had positive returns in February. Risk-correlated assets led the way, with high yield bonds gaining 1.5%, while the Bloomberg Barclays Aggregate added 0.7% as long-term yields declined modestly.
  • The Fed kept interest rates unchanged following its January/February meeting, but since then FOMC members have indicated their intent to move sooner than markets had anticipated, signaling that a March hike was a distinct possibility.
  • Economic data suggests the economy may be gaining momentum; consumer confidence is at its highest level in nearly 16 years, while retail sales grew faster than expected in January, and the U.S. labor market remains strong.

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February’s Employment Situation Research Notes

March 10, 2017

Strong February job creation pushes jobless rate down to 4.7% The jobs market continued its advance in February, as the unemployment rate dipped to 4.7% on solid job creation and limited layoffs. The decline from 4.8% in January pushes the jobless rate back toward the cyclical low of 4.6%. For the second consecutive month, job […]

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Jobless Claims (week of 2.25.17) Research Notes

March 2, 2017

Jobless Claims decrease sharply, fall to 44-year low Initial claims for unemployment insurance remained very low for the week ended February 25, decreasing sharply to 223,000 from a revised 242,000 a week ago. That result was well below the expectations of economists, who had projected little change. The four-week moving average for claims also declined […]

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February’s Consumer Confidence Research Notes

February 28, 2017

Consumer confidence rises to highest point in nearly 16 years The Conference Board’s measure of consumer confidence rose in February to 114.8, not only beating the prior month’s result of 111.6, but also climbing more than economists had anticipated. Confidence has surged in the post-election period, reflective of a renewed sense of optimism about the […]

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Consumer Sentiment Research Notes

February 24, 2017

Sentiment dips in February, but remains near decade high The University of Michigan Consumer Sentiment Index edged up to 96.3 from 95.7 earlier in the month. Economists had expected a more modest increase. The index remains below its January cyclical peak of 98.5, but indications are still that U.S. consumers are – on average – […]

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Jobless Claims (week of 2.18.17) Research Notes

February 23, 2017

Weekly claims edge higher; 4-week average falls to multi-year low Initial claims for unemployment insurance remained very low for the week ended February 18, increasing by 6,000 to 244,000, above consensus expectations for 240,000. Despite that increase, the four-week moving average of jobless claims dipped by another 4,000 to 241,000, a new low point in […]

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Special Commentary

February 16, 2017

Executive Summary ​Rising interest rates late in 2016 took a toll on bond prices, and were the catalyst for one of the worst quarters for bonds in recent decades. Current expectations are for interest rates to move gradually higher in 2017. While rising rates can be a headwind to bond performance in the near term, […]

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Market Perspective (February 2017)

February 16, 2017

Executive Summary ​Domestic equities extended their post-election rally in January, with all major benchmarks gaining ground. International stocks outperformed their domestic counterparts in January, earning positive returns in local currency terms as well as benefitting from a foreign exchange tailwind created by a weakening dollar. Most fixed income indices were modestly positive, with those more […]

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January Retail Sales Research Notes

February 15, 2017

Retail sales up 0.4% in January; CPI surge of 0.6% the largest monthly gain in four years Retail sales increased by 0.4% in January, easily surpassing expectations for a modest 0.1% increase. Excluding auto sales, which were quite soft in January, retail sales grew at a strong 0.8% clip. December retail sales were also revised […]

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