Hello, this is Claire Ellerhorst, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices were mixed to modestly positive last week, as investors continued to assess the impact of the war in Ukraine and a more hawkish Federal Reserve. The S&P 500 Index rose just under one tenth of one percent in total return for the week, while the Nasdaq Composite rose 0.7% and the Dow Jones Industrial Average fell 0.1%. The S&P 500 clocked its first quarterly decline since early 2020, ending the first quarter down 4.6% in total return, even after rallying back 3.7% in the month of March. Oil prices dropped last, with West Texas Intermediate crude down 12.8%, the biggest weekly drop since April 2020. The U.S. 10-year Treasury yield fell 9 basis points to end the week at 2.38% but remains up 87 basis points year-to-date. The 2-year to 10-year yield curve inverted for the first time since 2019, with the 2-year U.S. Treasury yield now higher than the 10-year yield. Yield curve inversions are historically considered a leading indicator for recession but must persist to be a meaningful indicator. Even if the inversion is accurately signaling a recession ahead, it does not tell us when that will happen or the heights that the market might achieve before any prospective bear market and recession.
The U.S. economic calendar was busy last week. Arguably the most closely watched release was Friday’s employment situation report from the Bureau of Labor Statistics. The report showed U.S. employers added 431,000 workers to payrolls in March, less than anticipated but following an upwardly revised increase of 750,000 in February. The unemployment rate fell more than expected to 3.6%, close to its pre-pandemic low. The labor force participation rate continued to tick higher and wage gains accelerated. A separate report, the Job Openings and Labor Turnover Survey, showed there were still more than 11 million job openings in February and 4.4 million Americans quit their jobs during the month. Both labor reports reinforced the Federal Reserve’s plans for tightening in the coming months.
The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index, considered an important indicator for the health of the economy, unexpectedly fell to 57.1 in March but remains well above the level of 50 that indicates expansion in the sector. We also got a reading on consumer confidence from the Conference Board, which showed a modest increase for March, though the reading for February was revised lower. The war in Ukraine weighed on confidence, as well as the highest inflation in decades.
In the week ahead, the economic calendar includes readings on factory orders and the trade balance. Minutes are released from the Federal Reserve’s March meeting, during which officials voted to raise the Fed funds rate for the first time since the pandemic started amid surging inflation and a strong labor market. The minutes will be scrutinized for clues on the path forward for monetary policy, in particular discussions around quantitative tightening – the selling of assets on the Fed’s balance sheet—and the potential for a 50-basis point rate hike at its next meeting in May.
As always, we’ll be watching and reporting back to you. Thank you.