In today’s Steady Investor, we look at key factors that we believe are currently impacting market volatility and what could be next such as:
• Inflation gauge rose to 2.5% in February
• The U.S. services sector expands
• An update on the U.S. housing market
Getting Closer to 2% Inflation – The consumer price index (CPI) measure is the most widely-known and cited inflation metric in the U.S. But it’s arguably not the metric that matters the most. The Federal Reserve pays more attention to the personal-consumption expenditures (PCE) price index, which is released by the Commerce Department and tends to get buried in the news cycle. If the PCE price index is the Fed’s preferred inflation gauge, it should be the one investors watch most closely, in our view. Last Friday, the Commerce Department reported that the headline PCE price index rose 2.5% year-over-year in February, which is well within reach of the Fed’s long-run 2% target. Month-over-month, the PCE price index rose 0.3%, which was slightly better-than-expected.
The PCE Price Index is Running Closer to the Fed’s 2% Target Than CPI
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Federal Reserve Chairman Jerome Powell seemed pleased overall with the data, saying that “it’s good to see something coming in in-line with expectations.” Powell reiterated that the Fed at this stage is not necessarily looking for further improvements in the inflation data, but rather more evidence that it is anchored.
The U.S. Services Sector Continued Expanding in March – The Institute for Supply Management (ISM) reported the 15th straight month of expansion for the U.S. services sector, with the Services PMI registering at 51.4%. This print was slightly lower than February’s, but a key detractor from expansion was a 3.5% decline in supplier delivery times, to 45.4%. This piece of the data should arguably be viewed as a positive, as it underscores rising efficiency in supply chains. On the flip side, the Business Activity and New Orders components of Services PMI—which can be viewed as leading indicators for the economy—remain firmly in expansion territory, and the production gauge rose to a very solid 57.4%. The Employment Index component registered at 48.5%, marking the third contraction in four months. This data point, though slightly weak, provides evidence of labor market softening—which factors as a positive for the outlook on interest rates. Manufacturing, which contributes a substantially smaller share to overall U.S. GDP, also expanded in March for the first time in 16 months, with New Orders shifting back into expansion territory at 51.4%.4
Is a U.S. Housing Rebound Underway? 2023 was tough sledding for the U.S. housing market, with sales falling to their lowest levels in almost three decades. Low inventory, high prices, and soaring mortgage rates all contributed to the pressure. 2024 looks different out of the gates. For the first time in over two years, home sales have increased month-over-month for two consecutive months (January and February), with sales of existing homes jumping 9.5% in February to a seasonally adjusted annual rate of 4.38 million. Economists had expected a 1.3% decline. Mortgage rates have eased off highs and inventories are on the rise particularly from newly built homes, moving in the direction of rebalancing supply and demand. The imbalance remains in place for now, however, as the national median existing-home price rose 5.7% year-over-year in February to $384,000.5
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• The key tax rules that every retiree must know
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• Be prepared with this guide to the most important retirement financial and investment issues
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Disclosure
2 Fred Economic Data. March 29, 2024. https://fred.stlouisfed.org/series/PCEPI#
3 Zacks Investment Management reserves the right to amend the terms or rescind the free How the Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
4 ISM. 2024. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/march/
5 Wall Street Journal. March 21, 2024. https://www.wsj.com/economy/housing/u-s-home-sales-jumped-nearly-10-in-february-7f77a35a?mod=economy_feat6_housing_pos2
6 Zacks Investment Management reserves the right to amend the terms or rescind the free How the Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
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