Trend watch and what’s new this week
The activity-based data largely seemed to tread water this past week, likely due to the spring holidays (slides 5 and 6). One notable weak spot was hotel occupancy, which dropped sharply to 61.3% due to both Easter and Passover holidays.
However, weekly air passenger counts slipped modestly to 16.2 million, but stayed above 16 million for fifth consecutive weeks for the first time since August 2019. The first quarter daily average of 2.114 million passengers was above the 2.107 million pace during first three months of 2019. Furthermore, Delta Airlines reported record advanced paid bookings for this summer.
Consumer inflation cooling but core prices stay firm
On slide 7, the Consumer Price Index (CPI) rose 0.1% in March. The year-over-year pace dropped an outsize 1% during the month, to 5.0% from 6.0% in February. That’s down considerably from 9.1% in June.
On slide 8, core CPI, which excludes food & energy, rose 0.4% month over month, while the year-over-year pace increased to 5.6% from a year ago. Among the biggest decliners were used vehicles, which fell for the ninth straight month.
On slide 9, we provide some possible inflation scenarios. While there are a wide range of potential outcomes, we expect CPI to trend toward 3% to 4% by this time next year. That would be considerably lower than the peak this past June, but still above pre-pandemic levels. Of course, a recession would accelerate the cooling of prices.
Big drop in wholesale prices in March due to gasoline
On slide 10, wholesale prices, as measured by the Producer Price Index (PPI), dropped 0.5% in March. That’s the biggest monthly decline since the pandemic for wholesale prices, which have only increased once in the past four months. Energy plunged 6.4% during the month. The year-over-year pace cooled to 2.7%, dramatically lower than 11.7% in March ’22. Core PPI, which excludes food & energy, slipped 0.1% month over month, while the annual change continued to cool, up 3.4% from a year ago.
Private rental data shows prices plateaued
On slide 11, we show rents from private rental sources for new leases. Rents spiked during 2021, which continued into 2022, growing 0.9% per month on average through September. Since then, rents have cooled considerably and appear to have plateaued. Rental prices in March rose 0.5% month over month, the second monthly increase after a four-month slide (from October to January).
Retail sales slump in March for the fourth time in five months
On slide 12, retail & food service sales in March fell 1.0%, though remain just 1.2% below the all-time high set in January. Soft gasoline and auto sales were a big downward driver. Excluding both autos and gasoline, retail sales fell 0.3% in March, also hovering near the all-time high.
Consumer confidence up, but inflation expectations up, too
Consumer confidence, as measured by the University of Michigan Consumer Sentiment Survey, rebounded to a reading of 63.5 in April after stumbling to 62.0 in March (slide 13). However, one-year inflation expectations surged to 4.6%, up a full percentage point compared to March due to the recent climb in gasoline prices. Yet, longer-term inflation expectations appear to be well-anchored, staying at 2.9% for the fifth month in a row.
Temporary staffing soft, but much stronger than prior trend
On slide 14, we highlight temporary staffing, which has been weak of late. It typically rebounds during the first quarter after the big seasonal year-end drop. It averaged 98.7 during the first quarter of this year compared to 102.4 in 1Q2022. That said, 1Q2023 was considerably stronger than the pre-pandemic 5-year average of 92.3.
Big 4 continue to look solid
On slide 15, we updated the four primary indicators used to date a U.S. recession. The so-called Big 4 suggest the economy is slowing, though not yet in a recession. That is especially true after we received solid industrial production and capacity utilization figures for March, coupled with upward revisions to the prior months.
It was a busier than normal data release week, making this week’s Economic Data Tracker a sort of “chart-a-palooza.” Without rehashing each report, on balance, most were more positive in terms of their economic implications than the prior few months. For instance, the March inflation readings generally cooled, including the rental prices, which have been propping up core inflation.
However, we’d note that just because some data is coming in weaker than in 2022, doesn’t necessarily mean it’s weak. Case in point is the temporary staffing trends we highlight on slide 14. Similarly, retail sales have ticked down but remain near their all-time high. That said, if the weakness continues and overall economic growth in 2023 is weaker than 2022, it will appear to be a recession from a gross domestic product (GDP) standpoint.
Ultimately, inflation has been moving in the right direction, but it remains uncomfortably high and well above the Federal Reserve’s (Fed) 2% target. That means the Fed will remain focused on curbing inflation, aka price stability. As the past two years have illustrated, once the inflation toothpaste is out of the tube, it’s extremely difficult to regain control. Historically, it has taken years and required a recession to do so. Thus, while there’s plenty of reasons for the Fed to "pause“ their rate hikes, we suspect that they will likely raise rates by another quarter point (0.25%) at the May 3rdmeeting to ensure that inflation is defeated.
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