USA
• Nonfarm payrolls rose 431K in March, slightly less than the +490K print expected by consensus. A sizeable upward revision to the prior months’ results (+95K) more than compensated for that miss. Employment in the goods segment jumped 60K, with gains in manufacturing (+38K) and construction (+19K). Services-producing industries, meanwhile, expanded payrolls by 366K, with notable increases for leisure/hospitality (+112K), professional/business services (+102K), education/health (+53K) and retail (+49K). Employment in the public sector advanced 5K. Average hourly earnings rose 5.6% YoY in March, 4 ticks more than in the prior month and a touch above the median economist forecast calling for +5.5%. Month on month, earnings progressed 0.4%. Another positive development was the increase in the participation rate, which has now risen 0.5% since the start of the year. This suggests that, after a long break, some people are now re-joining the labour market, thereby providing a bit of relief to understaffed firms. It’s still early to cry victory on the labour supply front. The participation rate remains 1.0% below its level in February 2020 and structural issues continue to keep some workers away
• The ISM Manufacturing PMI fell from 58.6 in February to 57.1 in March, instead of rising to 59.0 as per consensus. This was a bit below this indicator’s pre-pandemic level but still consistent with a decent pace of expansion in the goods economy. The new orders (from 61.7 to 53.8) and output sub-indices (from 58.5 to 54.6) signaled a moderation in growth, with both gauges dropping to their lowest level since the onset of the pandemic. Employment (from 52.9 to 56.3), on the other hand, expanded at the fastest pace in 12 months. The impacts of the war in Ukraine, and more specifically of rising energy costs were clearly visible in the report. the prices paid index surged from 75.6 to 87.1, signalling one of the steepest rises in input costs on record. Supplier delivery times, for their part, continued to increase, albeit at a slower pace than in the prior month (from 66.1 to 65 .4). Of the 18 manufacturing industries surveyed, 15 reported growth in March
• The Conference Board Consumer Confidence Index edged up from a 12-month low of 105.7 in February (initially estimated at 110.5) to 107.2 in March, a result roughly in line with the median economist forecast of 107.0. The monthly increase reflected an improved assessment of the present situation. Indeed, the associated tracker jumped from 143.0 to an eight-month high of 153.0 as the percentage of respondents who deemed jobs plentiful rose from 53.5% to an all-time high of 57.2% and the percentage of polled individuals with a positive view of current business conditions climbed from 17.6% to 19.6%
• Longer-term consumer expectations were much less upbeat. The sub-index tracking sentiment towards the next six months moved down from 80.8 to an eight-year low of 76.6. A smaller share of respondents had a positive outlook on future business conditions (from 21.3% to 18.7%) and employment (from 19.4% to 17.4%). Without wanting to minimize the effects of the invasion of Ukraine on confidence, household concerns about mounting inflation had more of an impact over the survey period. Indeed, consumers in March expected inflation over the next 12 months to reach 7.9%, its highest level since data collection began in 1987
• The Job Openings and Labor Turnover Survey (JOLTS) showed that positions waiting to be filled eased in February, from 11,283K to 11,266K. Despite the slight decline, the ratio of job offers per unemployed person continued to rise, going from 1.73 to a near all-time high of 1.80. The report also showed that hires jumped from 6,426K to 6,689K, a level 11.0% above this indicator’s pre-pandemic peak. Total separations, for their part, rose slightly from 6,044K to 6,092K as quits increased from 4,258K, to 4,352K. The quit rate—the number of voluntary separations as a percent of total employment—ticked up to 2.9%, just 0.1 percentage point below the all-time high attained late last year. The large number of quits is encouraging in that it might reflect growing confidence among employees and stiffer competition among employers
• Nominal personal income rose 0.5% in February after increasing 0.1% the month before. As the labour market continued to recover, the wage/salary component of income progressed 0.8%. Income derived from government transfers, meanwhile, contracted 0.3%, primarily reflecting a decline in the Provider Relief Fund as well as a decrease in Supplemental Nutrition Assistance Program benefits. All this translated into a 0.4% monthly gain for disposable income. Nominal personal spending, for its part, edged up 0.2% as an advance for services (+0.9%) was partially offset by a retreat in goods spending (-1.0%). As disposable income expanded at a faster pace than spending did, the saving rate sprang from a decade-low 6.1% to 6.3%. Adjusted for inflation, disposable income fell 0.2% – a seventh consecutive drop -, while spending shrank 0.4%. With one month of data still to come, real household consumption is on track to grow roughly 3.8% annualized in the first quarter of the year
• Still in February, the headline PCE deflator came in at 6.4% YoY, up from 6.1% the prior month and its highest point since January 1982. The core PCE measure, meanwhile, climbed from 5.2% to a 39-year high of 5.4%
• According to the S&P CoreLogic Case-Shiller 20-City Index, home prices rose for the 117th consecutive month in January, springing a seasonally adjusted 1.76% after climbing 1.43% the prior month. This was the joint- steepest monthly gain recorded since 2013 (tied with 2021M05). All the cities in the index saw higher prices, led by San Francisco (+3.16%), Tampa Bay (+2.63%), and San Diego (+2.55%). YoY, the index was up 19.1% (vs. 18.6% the prior month), the fifth-largest 12-month jump ever recorded
• After plunging to a 53-year low, initial jobless claims bounced back from 188K to 202K in the week to March 26. Continued claims, for their part, slipped from 1,342K to 1,307K. This was the lowest level recorded since December 1969, when the U.S. population was much smaller than it is today. Such low levels of claims reflect the extraordinary strength of the labour market at the present time
• The third estimate of Q4 GDP growth pegged in at +6.9% in annualized terms, one tick down from the previous release. The details of the report showed downgrades to household consumption, business investment and exports being only partially offset by stronger showings for residential investment and inventories, the latter remaining the main driver of growth in the quarter. The report also showed pre-tax corporate profits advanced an annualized 2.8% from the prior quarter after surging 14.5% in Q3. On a 12-month basis, profits were up 21.0%
• The 2023 US federal budget proposed by the president includes tax hikes on the ultrawealthy and corporations while authorizing billions of dollars in new spending at the Defense Department and the Justice Department. The proposal sent to Congress touts a reduction in the federal budget deficit of more than $1 trillion over the next 10 years. Biden also proposed a new 20% minimum tax on the top 0.01% of earners and households worth more than $100 million
• On Thursday, the spread between the US 2-year Treasury and the 10-year rate inverted for the first time since 2019. This part of the yield curve is the one most closely watched by investors and could signal a recession on the horizon should it invert. On Monday, 5-year and 30-year Treasury yields inverted for the first time since 2006. The yield on the 5-year Treasury note rose to 2.64% while the 30-year yield was 2.60%. Five-year and 30-year treasury yields inverted again on Friday morning, with the 5-year surging to 2.522% and 30-year at 2.519%
• The major indexes ended mixed for the week, with the S&P 500 Index closing out its best month since December but its worst quarter since early 2020. Cyclically sensitive stocks underperformed as investors girded for a slowdown in growth, with the financial services and industrials sectors in the S&P 500 among the losers. Higher interest rate expectations took a toll on the information technology sector, while the typically defensive consumer staples and utilities sectors outperformed
UK
• Nationwide’s measure of house prices grew 1.1% MoM in March with YoY growth increasing by 14.3%, up from 12.6% in February and well above consensus of 13.4%. House price growth has been strong across Q1 2022 and has confounded expectations during the pandemic period with prices now 21% higher than early 2020. It is expected that rapid increases in house prices will slow considerably in the coming months as cost of living pressures hit consumers. Inflation is due to be stubbornly high during 2022 – with the OBR’s March 2022 outlook expecting it to jump to around 8% in April and reach 9% in October; a higher tax burden particularly through fiscal drag will add to the squeeze on consumer incomes; and rising interest rates will increase the cost of borrowing for those taking on mortgages
• The UK economy grew more quickly than previously thought in the final quarter of 2021, with the rate of expansion revised higher to 1.3% from the previous estimate of 1%. However, the increase was mainly due to coronavirus-related activity in the health sector. Meanwhile, a survey from the Institute of Directors showed business sentiment slumped in March because of deteriorating economic conditions
EU
• Eurozone inflation in March rose to 7.5 percent YoY, compared to 5.8 percent in the previous month and was above expectations. Energy is expected to have the highest annual rate this month (44.7 percent, compared with 32.0 percent the month before), followed by food, alcohol & tobacco (5.0 percent, compared with 4.2 percent), non-energy industrial goods (3.4 percent, compared with 3.1 percent) and services (2.7 percent, compared with 2.5 percent). Meanwhile, core inflation rose to 3 percent this month, compared to 2.7 percent in the previous one, which was below expectations. The HICP releases in March (February) for major eurozone countries were as follows: France 5.1 percent (4.2), Germany 7.6 percent (5.5), Italy 7 percent (6.2) and Spain 9.8 percent (7.6). Roughly two thirds of this month’s annual headline inflation came from energy-related costs, and represent a significant shock to household living costs. In previous months, we observed a slightly higher passthrough of market prices to household costs in countries like Italy and Spain than in France and Germany. However, this month saw Germany’s CPI energy inflation rise to 39.5 percent from 22.5 percent last month, which challenges that assumption. Another issue is to what degree this is in turn passed on to broader, categories in the price basket
• ECB President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane expressed caution about the macroeconomic outlook as fighting continued in Ukraine. Lagarde reiterated at a conference in Cyprus that the eurozone faced slower growth and higher inflation in the short term, but she warned that “the longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios.” Under an “adverse” scenario (including stricter sanctions on Russia, persistent energy supply disruption, and increased geopolitical uncertainty), the ECB projects economic growth of 2.5% in 2022, compared with its base case of 3.7%
• Shares in Europe gained ground in a choppy week of trading, overcoming concerns about the macroeconomic outlook amid strong inflation and the ongoing Russian invasion of Ukraine. In local currency terms, the pan-European STOXX Europe 600 Index advanced 1.06%. Germany’s DAX Index climbed 0.98%, France’s CAC 40 Index tacked on 1.99%, and Italy’s FTSE MIB Index added 2.46%
CHINA
• China’s purchasing managers’ indexes for manufacturing and services lagged forecasts and fell into contraction in March as outbreaks of the omicron variant of the coronavirus across the country led to lockdowns and disrupted industrial production. Many economists have reduced their economic growth forecasts for China due to the virus’s resurgence and the government’s zero-tolerance approach to outbreaks. Shanghai saw a renewed COVID-19 outbreak with more than 32,000 cases reported in the past month, the biggest spread of infection in China since it first appeared in Wuhan
• The People’s Bank of China published details of its first-quarter Monetary Policy Committee meeting, which noted increasing uncertainties domestically and abroad. The central bank said that conditions warranted strengthening of policy implementation, remarks that some analysts interpreted as a sign of further credit easing while keeping monetary conditions stable
• On Wednesday, the U.S. Securities and Exchange Commission added five U.S.-listed Chinese internet companies to its growing list of companies facing possible delisting due to China’s refusal to allow U.S. regulators to inspect their audits. Baidu, China’s leading search engine, and its video-streaming unit iQiyi were among those added to the list of companies targeted by the Holding Foreign Companies Accountable Act (HFCAA). The newly identified companies could be subject to delisting from U.S. exchanges if they fail to comply with the HFCAA’s audit requirements for three straight years
• Chinese markets gained for the week, as investors anticipated that Beijing would step in to support the country’s economy and markets. The broad, capitalization-weighted Shanghai Composite Index rose 2.2%, and the CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, climbed 2.4%, according to Reuters
Sources: T. Rowe Price, MFS Investment Management, Handelsbank Capital Markets, National Bank of Canada, M. Cassar Derjavets