Blog / Economic Commentary

  • Weekly Economic Monitor -- Inflation Hysteria and the Fed

    By: Scott J. Brown, PH.D., Raymond James

    Inflation Hysteria and the Fed – The CPI rose more than expected in April, adding to inflation worries. The University of Michigan’s Consumer Sentiment index dipped in the mid-March reading, reflecting growing concerns about inflation and potential rate hikes. Yet, Fed officials, while acknowledging risks, have remained calm.

    This Week – The economic data are second-tier and unlikely to be market moving. Residential construction activity is likely to have improved in April. The Index of Leading Economic Indicators should be up by about 1.6% (no surprise, it’s a published formula and most of the components are known), led by the drop in jobless claims. FOMC policy meeting minutes (from late April) should reinforce the Fed’s view, may not cover new ground, but quotes taken out of context have the potential to influence the financial markets.

  • Weekly Economic Monitor -- The April Employment Report

    By: Scott J. Brown, PH.D., Raymond James

    The April Employment Report – Prior to seasonal adjustment, nonfarm payrolls rose by 1.089 million in the initial estimate for last month, about what we would see in a typical (pre-pandemic) April. The “problem” was that the seasonally adjusted gain was only 266,000 (+218,000 for the private sector). We shouldn’t make too much of one particular month of employment data. The three-month trend remained strong. However, there are going to be labor market challenges as we get back to normal and beyond.

    This Week – The Consumer Price Index is expected to be up about 3.5% year-over-year, but that reflects a rebound from the low level of a year ago (+0.3% y/y in April 2020). Retail sales are expected to advance further (unit auto sales were reported higher). Industrial production may post a modest gain at best (in the April Employment Report, production hours were reported to have fallen 0.5%). Open your hymnals to page 238 – three members of the Fed’s Board of Governors will speak, all on the same subject (“U.S. Economic Outlook and Monetary Policy”).

  • Weekly Economic Monitor -- What Does the 1Q21 Data Tell Us

    By: Scott J. Brown, PH.D., Raymond James

    What Does the 1Q21 Data Tell Us About the Rest of the Year? – The Bureau of Economic Analysis reported that Gross Domestic Product (GDP) rose at a 6.4% annual rate in the advance estimate for the first quarter. However, that understates the economy’s strength. Private Domestic Final Purchases, a better measure of underlying domestic demand, rose at a 10.6% pace. Looking at the various components tells a story, one that ought to lead to reversals in some areas and strength in others. While many have obsessed about temporary inflation pressures from tight supply chains, the amount of slack in the labor market is potentially a bigger concern to the outlooks for growth and inflation.

    This Week – In a typical (pre-pandemic) April, the economy would add a little over one million jobs prior to seasonal adjustment. We should easily surpass that this April, but seasonal adjustment can be tricky. The unemployment rate is likely to edge lower, despite an expected pickup in labor force participation. Keep an eye on the employment/ population ratio. The April ISM surveys should be consistent with a strengthening economy.

  • Weekly Economic Monitor -- Trade, the Dollar, and Inflation

    By: Scott J. Brown, PH.D., Raymond James

    Trade, the Dollar, and Inflation – The advance estimate of 1Q21 GDP growth is expected to show negative contributions from net exports and the change in inventories. Private Domestic Final Purchases (consumer spending, business fixed, investment, residential fixed investment), a better measure of underlying domestic demand, should be a lot stronger. All else equal, a wider trade deficit puts downward pressure on the dollar, but while the trade-weighted dollar has risen relative to the end of last year, and by itself is not a significant issue in the inflation outlook. Prices of raw materials have risen, but that is likely to be transitory. Inflation in finished imported goods has remained moderate.

    This Week – The FOMC is widely expected to leave short-term interest rates and the monthly pace of asset purchases unchanged, while Chair Powell is unlikely to cover new ground in his press conference (but you never know). The advance estimate of 1Q21 GDP growth should be quite strong, likely held back by slower inventory growth and a wider trade deficit. Focus on Private Domestic Final Purchases (consumer spending, business fixed investment, and residential fixed investment), which should be a lot stronger. In his address to a joint session of Congress, President Biden will make his case for his infrastructure plan and spending priorities.

  • Weekly Economic Monitor -- This and That

    By: Scott J. Brown, PH.D., Raymond James

    This and That – The Bureau of Economic Analysis will report the advance estimate of 1Q21 GDP growth on April 28, the day after the Federal Open Market Committee meeting. There’s always a lot of uncertainty heading into the initial GDP estimate. We don’t have all the pieces of the puzzle. Recent economic data reports have generally been stronger than expected, which is encouraging, but the first quarter figures may not tell us much about what lies ahead.

    This Week – The economic calendar is relatively thin. March home sales figures (existing on Thursday, new on Friday) should rebound sharply from February’s weather-related weakness. The Conference Board’s Index of Leading Economic Indicators should jump higher (about +1.2%), with most components making positive contributions. The following week will be more eventful.