Economic Data Tracker – 
Rodney Dangerfield of economies

Economic Data Tracker

March 1, 2024

Our weekly view on the economy including rationale on GDP, jobs report, and Fed policy decisions. Download the entire weekly edition to view timely charts and data providing a comprehensive picture of how incoming economic data affects our economic outlook.

Trend watch

Air passenger counts finally stumbled, slipping to 16.4 million for the past seven days and falling 1.9% week over week, snapping a four-week up streak. Still, year-to-date passenger traffic is running up 8.7% compared to the same period in ’19. The remaining activity-based indicators (slides 5 and 6) continued to improve from the cyclically slower year-end patterns.

Otherwise, it was a very heavy week for major economic data releases. On balance, most were solid, though several showed weakness, including new durable goods orders and the ISM Manufacturing Index. 

What’s new this week

  • Growth in 4Q23 revised down a tick, though consumers stayed solid (slide 7).
  • New home sales down 3 of past 6 months, while prices up in January (slide 8).
  • Boeing troubles ding new orders, but core capital goods orders up in January (slide 9).
  • ISM Manufacturing contracts for 16th month, while prices cool (slide 10).
  • Big 4 indicators show U.S. economy isn’t in recession (slide 11). Updated following strong personal income and spending for January.
  • The Fed’s favorite inflation gauge hotter as housing isn’t cooperating (slide 12).
  • Global shipping costs remain elevated following issues at two pinch points (slide 13).
  • Foreign investment in China stumbled for the first time in over 20 years, and our sense is this weaker trend is just starting (slide 14).

Our take

Whether it was the endless recession calls for 2023 (ourselves included) or now questioning the type of landing, the U.S. has been the Rodney Dangerfield of economies during the past year, a nod to the late great comic known for his iconic schtick of getting “no respect!”. Regardless of the topic, the U.S. economy is seemingly seen as ailing and in need of something – from rate cuts or lower inflation, to additional fiscal stimulus and tax cuts. And if the fix wasn’t delivered, the economy would tumble into the abyss.

Yet, much of the economic data has been solid for months and growth has handily topped expectations. Growth has empirically been good – with no qualifiers such as “compared to Europe” or elsewhere. (That said, the U.S. currently looks like King Kong economically compared to Europe, but that’s another discussion).

Indeed, there are exceptions, most notably, manufacturing and housing. Yet, even within those industries, both seem to be stabilizing and even perhaps have some green shoots. If nothing else, they aren’t getting worse. Thus, perhaps it’s best to characterize the U.S. economy as good but not great.

More importantly, this solid economy has been achieved without those saviors. No rate cuts. No tax cuts. No gimmicks. Though inflation has retreated, we’d say much of it was due to repairing supply chains, productivity gains by businesses, and the slower growth that resulted from the rate hikes in ’22 and early ’23 by the Federal Reserve (Fed).

Inflation now appears to be on a steady glidepath lower, receding considerably in recent months, which supports the notion that interest rates can be reduced some in ’24.

However, as we have mentioned here, inflation has remained stickier than expected and it will likely be a bumpy path at times. Thus, we believe that the Fed will remain patient, waiting a bit longer to reduce rates until it becomes clear that inflation will sustainably stay close to its 2% target. That likely means the Fed will begin cutting rates in the summer, which hinges on the cooperation of incoming economic data.

That said, we don’t view rate cuts as the silver bullet to avoiding a recession. (SPOILER ALERT – we already think the U.S. has avoided a recession). We see rates as fairly restrictive currently and believe the Fed does, too, and is seeking an eventual off-ramp.

Understand, though, that simply reducing interest rates slightly wouldn’t be easy monetary policy. In other words, lowering the Fed funds target rate to say 5% would still be restrictive. That is much of the reason why the Fed doesn’t have to wait until inflation moves all the way down to its 2% target. Moreover, there are considerable lags between when the Fed changes monetary policy –  by raising or lowering interest rates – and when it fully impacts the economy. Alas, there’s still more wood to chop regarding inflation before rate cuts occur. 

Bottom line

Despite the lack of respect, the U.S. economy remains resilient, as evidenced by solid consumer spending trends along with continued hiring and business investment. These up the chances of sidestepping a recession. However, the cumulative impact of higher rates will continue to slow economic growth. 

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