Economic data came in a little hotter than anticipated during February, dashing investors hopes for a 2023 pivot from the Federal Reserve. Inflation is proving stickier than many had forecast, and the FOMC is now seen having to push short-term interest rates to near 6% by year-end. The data around employment and inflation remain particularly robust, defying earlier Fed predictions that we should see a softening in economic conditions in Q1.
Nonfarm payrolls surged by +517k in January, far exceeding analyst predictions for a +189k rise. The Unemployment Rate fell to 3.4%, down from the prior month’s reading of 3.5%. Average Hourly Earnings edged up +0.3% MoM, and YoY have risen +4.4%, a slight decline from the prior month’s reading of +4.8%. The Labor Force Participation Rate edged up slightly to 62.4%, while Initial Jobless Claims remained below 200k per week. The JOLTS Job Openings number for December came in much stronger than expected at +11mm, signaling continued high demand for labor.
On the inflation front, Consumer Prices rose +0.4% in January, while Core CPI edged up +0.4% MoM. This translates to a +6.4% YoY rise in broad consumer prices and a +5.6% YoY jump ex-food and energy. On the wholesale front, producer prices surged +0.7%, while Core PPI rose +0.5%. Annually, this is a +6.0% gain in PPI and a +5.4% rise stripping out food and energy. The Fed’s preferred inflation gauge, the PCE Deflator rose a higher than forecast +0.6% on the month for a +5.4% YoY increase. Inflationary pressures remain with us across the economy and show little sign of abating anytime soon.
A combination of higher mortgage rates and inclement weather across the country has no doubt influenced home sales thus far in 2023. With 15 and 30-year borrowing rates above 6%, demand for existing homes has waned (-0.7% MoM in January) as current mortgage holders are reluctant to swap 3% loans for 6%. New Home Sales did spike in January, up +7.2% from the prior month, while Pending Home Sales surged +8.1%, no doubt driven by the still strong labor market. The S&P CoreLogic CS 20-City home price composite did dip -0.51% in December, although home prices remain up +4.65% YoY.
The Fed will need to remain vigilant in its efforts to bring inflation under control and return to the 2% target rate. Current forecasts suggest a Fed Funds rate of nearly 5.5% later this year, data dependent of course. Fears of a hard landing would appear overblown at this point, given low unemployment and strong labor demand. Now being floated is the idea of a “no landing” economy – a continuation of slow but steady growth in the US economy. Current data would seem to be reinforcing that notion.
To read further about domestic and international equity, fixed-income and alternative investments please open the full paper below:
Nottingham Advisors offers both institutional and individual clients experience, sophistication, and professionalism when helping them achieve their goals. With over 40 years of serving Western New York and clients in more than 30 states, Nottingham tailors each solution to fit the specific needs of each client.
For more information about Nottingham’s offerings, visit www.nottinghamadv.flywheelstaging.com or call 716-633-3800.
Nottingham Advisors, LLC (“Nottingham”) is an SEC registered investment adviser located in Amherst, New York. Registration does not imply a certain level of skill or training. Nottingham and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Nottingham maintains clients. Nottingham may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. For information pertaining to the registration status of Nottingham, please contact Nottingham or refer to the Investment Advisor Public Disclosure Website (www.adviserinfo.sec.gov). Any subsequent, direct communication by Nottingham with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.
This newsletter is limited to the dissemination of general information pertaining to Nottingham’s investment advisory services. As such nothing herein should be construed as the provision of personalized investment advice. The information contained herein is based upon certain assumptions, theories and principles that do not completely or accurately reflect your specific circumstances. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Adhering to the assumptions, theories and principles serving the basis for the information contained herein should not be interpreted to provide a guarantee of future performance or a guarantee of achieving overall financial objectives. As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. Furthermore, this newsletter contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. As such, there is no guarantee that the views and opinions expressed in this article will come to pass. This newsletter should not be construed to limit or otherwise restrict Nottingham’s investment decisions.
This newsletter contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. Some portions of this newsletter include the use of charts or graphs. These are intended as visual aids only, and in no way should any client or prospective client interpret these visual aids as a method by which investment decisions should be made. We have provided performance results of certain market indices for illustrative purposes only as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio. It should not be assumed that your account performance or the volatility of any securities held in your account will correspond directly to any benchmark index. A description of each index is available from us upon request.
Investing in the stock market involves gains and losses and may not be suitable for all investors. Past performance is no guarantee of future results.
For additional information about Nottingham, including fees and services, send for our Disclosure Brochure, Part 2A or Wrap Brochure, Part 2A Appendix 1 of our Form ADV using the contact information herein.
