What's It Going To Take For The Fed To Get Some Confidence?

Federal Reserve Chair Jerome Powell made it clear Wednesday that policymakers aren't satisfied.

During his press conference, he said the central bank isn’t going to stop squeezing the economy with high interest rates until the committee has “gained greater confidence that inflation is moving sustainably toward” the Fed’s goal of a 2% annual inflation rate.

So, what would give the Fed that confidence?

That’s “the million dollar question Jerome Powell wouldn’t clearly answer,” Robert Kavcic, senior economist at BMO Capital Markets, wrote in a commentary Thursday. After all, by some measures, inflation is already running at a rate on track to reach the Fed’s inflation goal. So what more do they need?

When a reporter asked Powell how many months of good inflation data it would take to instill confidence, he replied:

“I'm not in a position to put a number on it.”

One Of The Most Important Gauges of Economic Health is Working Again

Labor productivity is probably the economic metric that best shows how healthy the economy is—and since the pandemic hit, that measure has been broken.

It’s been very hard to tell how well the U.S. economy has been doing prod𓆉uctivity-wise. When the pandemic hit, the Bureau of Labor Statistics’ official𓂃 measure of productivity shot to a record high.

No one believes everyone suddenly got more productive—it’s just that massive numbers of workers got laid off in certain industries that c💧ontribute relatively little to the gross domestic product, such as food services. 

And as Ian Shepherdson, chief economist of Pantheon Economics pointed out in a commentary Thursday, the reverse happened when businesses began hiring people back—productivity dropped on paper, but it was just a fluke of the way statistics are compiled.

Read more about how labor productivity is working now here.

For FOMC Watchers, May is the New March

Federal Reserve Chair Jerome Powell made it clear Wednesday that there likely won't be a rate cut in March.

While he didn't completely close the door, he said the Federal Open Markets Committee still 澳洲幸运5官方开奖结果体彩网:isn't s♕o surꦿe that inflation isn't sticking around.

"I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting," he said.

That's caused investors and analysts to shift their attention to the following meeting in May.

According to the CME FedWatch tool, which forecasts interest rate movements based on fed funds futures trading data, there's only a 37% chance of a rate cut in March. That number was 53% before the meeting꧋ yest๊erday and 73% a month ago.

That same measure puts the ▨probability of a ra🐓te hike in May at more than 95%.

U.S. Productivity Grows 3.2% in the Fourth Quarter

In a promising trend in the fight against inflation, hours worked and labor costs ൲hardly increased, allowing prices to remain steady.

According to a report from the Bureau of Labor Statistics Thursday, U.S. productivity continued to grow in the fourth quarter at 3.2%. That's slower than the 4.9% growth in the third quarter, but faster than economists expected.

澳洲幸运5官方开奖结果体彩网:Productivity is a measure of how labor inputs, like time spent on the job, wages, and labor costs, impact output. Some𒊎 things that can improve productivity without imposing longer hours on workers include improved labor skills, better management practices, and technological advances. 

“P🔜roductivity typically surges at the beg🎀inning of an economic expansion as output ramps up quicker than hours worked,” wrote Wells Fargo analysts Thursday.

Increased productivity helps businesses keep prices steady even as compensation goes up, he🌄lping the fight a🅘gainst high inflation.

-Avery Koop

Freddie Mac Mortgage Rate Dips to 6.63%

The 30-year fixed mortgage rate came in at 6.63% this week, Freddie Mac reported, declining from 澳洲幸运5官方开奖结果体彩网:6.69% last week.

Rates co♏ntinue to hover below 7% after f🎐alling from recent highs of nearly 8%in October of near 8%. Rates are still higher than at the same point last year when the 30-year mortgage averaged 6.09%.

“Mortgage rates have been stable for nearly two months, but with continued deceleration in inflation we expect rates to decline further,” sai💦d Sam Khater, Freddie Mac’s chief economist.

The 15-year fixed mortgage rate came in at 5.94%, a 澳洲幸运5官方开奖结果体彩网:basis point lower than the prior week, compared with the year-ago r♍ate of 5.14%.

-Terry Lane

Manufacturing Industry Shows Signs of Balance

In another surprise Thursday, manufacturing indicators improved despite economists' estimates of further contraction.

The ISM manufacturing purchasing managers𝄹' index (PMI) grew to 49.1 in January, growing two points. Economists expected a d🍌ecrease in the index.

"The ISM report is a case study in the task of maintaining price stability and maximum employment in today's variable speed economy," wrote Wells Fargo Economists Shannon Seery Grein and Tim Quinlan.

Construction Spending Exceeded Expectations in December

Construction spending grew 0.9% from November t෴o December, far exceeding the 0.5% economists expected.

The seasonally adjusted annualized rate of construction spending was about $2.1 trillion in December, compared to the revised $2.08 trillion.

"Construction spending trounced expectations in December," wrote Bernard Yaros, lead U.S. economist at Oxford Economics. "Robust year-end growth was largely attributable to private residential investment and construction outlays by the public sector."

Construction spending can be an important measure for housing and can be a leading indicator for the number of homes on the market to sell or🍎 rent. Residential construction spending was up 1.4% in December, indicating dipping mortgage rates and a low number of homes on the market are spurring home building.

Construction spending is ꦚalso a facet of gross domestic product, so many analysts keep an eye on it to help estimate the quarterly outcome.

Landlords Can't Raise Luxury Rents Because Too Many Apartments Are Being Built

The good news, if you’re a renter, is that your landlord may have a hard time raising your rent this year. The bad news is that this probably won't apply if you’re not in the market for the fanciest places in town.

That’s according to a rental market forecast by real estate data firm Yardi Matrix published Thursday, which found that a surge of high-end apartment construction in the U.S. is putting downward pressure on rents, especially in places where rent shot sky-high during the pandemic.

Indeed, apartment construction is near record highs. In December, there were 991,000 buildings under construction with five units or more, just shy of the record 1 million in July 2023, according to Census Bureau data. All that construct🎃𝐆ion is depressing rents, analysts at Yardi said.

“The main story of 2024 will be one of record supply coming online that will depress rent appreciation in many of the markets that saw explosive growth during the pandemic, and a handful of markets could end the year in negative growth territory,” Yardi analysts wrote.

That’s a distinct contrast to typical pre-pandemic trends when rents 🍌typically rose 3%-4% a year on average, they wrote. However, don’t expect a break unless you’re looking for a high-end place.

“Almost all of the new supply will be competing directly with existing Class A units, so we expect to see less growth in asking rents at the top of the market, and stronger growth in workforce and Renter-by-Necessity units,” they wrote.

Layoffs Accelerate in January as Companies Cite Cost-Cutting, Closures, AI

While layoffs are not drꦺiving unemployment filings too far from pre-pandemic levels, the sheer number of them has risen.

Layoffs accelerated in January as U.S.-based employers cut 82,307 jobs in January, up 136% from December, making it one of the worst starts of a year for job losses in two decades of tracking by executive coaching firm Challenger, Gray & Christmas.

Despite jumping from the prior month, January’s layoff totals are still 20% lower than the January 2023 reading. Last January was the worst for job cuts since January 2009, when employers announced 241,749 layoffs amid the 澳洲幸运5官方开奖结果体彩网:Great Recession.

The main driver of the layoffs is cost-cutting, with “澳洲幸运5官方开奖结果体彩网:restructuring” being the mosཧt common reason given fo✨r job cuts. The closings of plants, stores or other business units followed.

The report also showed that employers were scaling back hiring plans, with the 5,376 planned new hires in January being the lowest January ever recorde🦄d in the Challen✤ger report.

🌺 The highest number of layoffs was reported in the finance sector, where the 23,238 job cuts in January were the highest since 2018. The tech sector followed with 15,806 layoffs, up 254% from December and the highest reported since May. 

More companies also cite 澳洲幸运5官方开奖结果体彩网:artificial intelligence (AI) as a reason for job cuts, with 381 layoffs in January🐟 and 4,628 since the report started keeping track💞 in May. 

“The impact of rapidly advancing artificial intelligence adoption is beginning to be felt from a jobs perspective, particular🌸ly in Media and Tech, but truly across sectors,” said Andrew Challenger, senior vice president of Challenger, Gray & Christmas. “That s🌟aid, companies are not outright blaming AI for many layoff decisions.” 

-Terry Lane

 Unemployment Claims Rise By 9,000, Continuing To Hover At Low Level

Despite 澳洲幸运5官方开奖结果体彩网:headline-catching tech layoffs this week, there was no sign of a shift in this week’s data on unemployment claims.

The number of people who filed for unemployment the week ending Jan. 27 rose to 224,000, an increase of 9,000 from the week before and the highest since November, the Department of Labor said Thursday. Unemployment claims have wavered up and down close to pre-pandemic levels since the economy recovered from the pandemic recession.

Continued low unemployment claims are yet another sign that the economy and 澳洲幸运5官方开奖结果体彩网:the jo🅰b market are staying resilient in the face of the Fed’s interest rate hikes, which have so far helped reduce inflation without causing a recession, as many economists had predicted.