US Economic Outlook | March 2024

Market review 

As we enter the final month of the first quarter, a blend of data releases and geopolitical events, notably the 14th National People's Congress (NPC) of China, has prompted shifts in market sentiment. In the US, while the labor market is exhibiting signs of weakening as anticipated by the Federal Reserve, concerns surrounding inflation are resurfacing. Against this backdrop, the primary concern for most developed economies is sustaining long-term growth amidst the prevailing challenges.

 

US Economic Outlook

Wall Street commenced the year on a highly optimistic note, achieving new record highs largely fueled by the tech sector and AI-based stocks. The S&P 500 surged by 5.34% in February, but the sustainability of this growth in March remains uncertain.

 

Fourth-quarter earnings have exceeded expectations, with companies adeptly managing escalating costs amid 22-year highs in interest rates.

 

Although the US economy is experiencing a slight deceleration, recent data, including Non-Farm Payrolls (NFP) and Job Openings and Labor Turnover Survey (JOLTs) figures, indicate signs of weakening in job and wage growth, albeit remaining robust. The uptick in company layoff announcements suggests that, despite a slowdown in income growth, the risk of job displacement is rising. According to the US Bureau of Labor Statistics, US laborers' average earnings increased by only 0.1% in February, while the unemployment rate rose to 3.9% despite the creation of 275,000 new jobs, surpassing estimates.

 

Retail sales are anticipated to rebound by 0.8% in February following a similar-sized decline in the previous month, although significant purchases have tapered off in recent months.

 

Lower Treasury yields and mortgage rates have provided respite for the housing sector, fostering improved growth and potentially bolstering Q1 GDP figures. Headline inflation saw a 0.4% increase in February, reaching an annual rate of 3.2%, primarily driven by higher gasoline prices (+3.8%). Core inflation, excluding food and energy prices, also experienced 0.4% monthly growth, resulting in a 3.8% year-over-year increase. The CPI report generally corroborates FOMC members' remarks regarding inflation and the potential for rate cuts. With these data releases, the likelihood of the FOMC implementing its first rate cut appears increasingly probable, though not before the summer.

 

Overall, caution is warranted in the market, potentially leading to subdued movements in the USD and modest pressure on stock markets until the upcoming FOMC meeting. Market reactions will likely hinge on the FOMC statement and Chair Powell's press conference.

 

On the data front, upcoming releases include Producer Price Index (PPI) and Retail Sales on the 14th, Industrial Production and University of Michigan surveys on the 15th, Housing Market data on the 19th, FOMC meeting on the 20th, PMI numbers on the 21st, Housing data on the 25th, Durable Goods Orders and Conference Board Consumer Confidence on the 26th, GDP and University of Michigan surveys on the 28th, and finally, Personal Income and Spending on March 29, which are crucial indicators to monitor.