There were several important economic updates last week, with the March employment report serving as a highlight. The report showed that hiring continued at a strong pace during the month, driving the unemployment rate to a new pandemic-era low. This will be another busy week of updates, with three major reports scheduled.
Last Week’s News
On Tuesday, the Conference Board Consumer Confidence Index for March was released. The report showed that confidence rose from a downwardly revised 105.7 in February to 107.2 in March against calls for an increase to 107. After the index hit a one-year low in February, this modest rebound was driven by improving consumer views on the state of the economy. The present situation sub-index rose to its highest level since last July, owing to declining medical risks and labor market improvement. That said, future expectations declined to their lowest level since 2014, largely due to consumer concerns about high inflation levels. Low-income consumers who were surveyed saw the largest drop in confidence in March, reflecting the disproportionate impact that rising prices have on this group. Looking forward, we’ll likely need to see inflation come down materially before we see confidence rebound back to the pandemic-era highs we saw last summer.
On Thursday, the February personal income and personal spending reports were released. Personal spending increased 0.2 percent, which was a smaller increase than the 0.5 percent growth that was expected. January’s spending report was revised upward from an initial estimate of 2.1 percent growth to 2.7 percent, which helps explain the miss against expectations in February. The revised January and new February reports indicate that consumer spending held up relatively well at the start of the year despite headwinds created by the Omicron variant and rising prices. Personal income increased 0.5 percent, which was in line with economist estimates. The tight labor market supported personal income growth during the month, as wage and salary compensation increased 0.8 percent in February, helping to offset a 0.3 percent drop in government transfer payments. Personal income is expected to show continued growth in the months ahead, which may help support spending growth.
Speaking of the job market, Friday saw the release of the March employment report. The report showed that 431,000 jobs were added during the month, which was below economist estimates for 490,000 jobs but still strong on a historical basis. The January and February reports were revised upward by a combined 95,000 jobs, which explains some of the miss against expectations in March. The strong hiring growth during the month helped drive the unemployment rate from 3.8 percent in February to a two-year low of 3.6 percent, which was better than the expected drop to 3.7 percent. Wage growth increased 0.4 percent for the month and 5.6 percent on a year-over-year basis, highlighting the positive impact for workers from the labor market recovery since the start of the pandemic. Given the job market improvements and the high level of inflation throughout the economy, the Fed is expected to focus on tightening monetary policy throughout the year.
We finished the week with Friday’s release of the ISM Manufacturing report for March. This measure of manufacturing confidence declined from 58.6 in February to 57.1 in March against calls for an increase to 59. This is a diffusion index, where values above 50 indicate expansion, so this result signals continued growth for the manufacturing industry during the month despite the decline. For the past year, business confidence has been supported by strong demand for manufactured goods; however, rising material and labor costs have served as headwinds for the industry. New orders fell in March, likely reflecting the negative impact of rising prices and potentially softening demand. That said, 15 of the 18 sectors in the report showed growth in March, which is an encouraging sign that demand remains strong enough to support continued growth in manufacturing output.
What to Look Forward To
Tuesday will see the release of the international trade report for February. The trade deficit is expected to decline slightly during the month with forecasts calling for a drop from a record $89.7 billion in January to $88.5 billion in February. The advanced report showed that goods exports increased 1.2 percent during the month, which was enough to offset the 0.3 percent increase in imports and cause the trade deficit for goods to decline in February. If estimates hold, this would represent the second-largest monthly trade deficit on record, trailing only the January deficit. The monthly trade deficit increased at the start of the pandemic, and the uneven global economic recovery and tangled supply chains caused the deficit to widen even further at the end of 2021 and the start of 2022. Given the high level of monthly deficits to start the year, net international trade is expected to serve as a headwind for GDP growth in the first quarter.
On Tuesday, the ISM Services index for March is set to be released. Service sector confidence is expected to improve during the month, with economists calling for an increase from 56.5 in February to 58.8 in March. This is another diffusion index where values above 50 indicate growth, so this anticipated result would signal faster expansion for the service sector. Service sector confidence was strong throughout most of 2021, as high levels of pent-up consumer demand helped drive the index to a record high of 68.4 last November. Since then, we’ve seen service sector confidence decline partially due to the rising medical risks created by the Omicron variant. The declining medical risks are expected to support a rebound in service sector confidence. This would be an encouraging signal that business owners remain confident in the current economic expansion and are willing to invest in their businesses.
On Wednesday, the FOMC meeting minutes from the Fed’s March meeting are set to be released. The Fed raised the federal funds rate by 25 bps at this meeting, marking the first interest rate hike since 2018. Economists and investors will be paying close attention to these meeting minutes given the shift in monetary policy that was announced in mid-March. Looking forward, we can expect a sustained series of rate hikes throughout the year as the Fed tries to combat high levels of inflation throughout the economy. The minutes are expected to give us a better idea of the Fed’s view on the current state of the economy and what factors could lead to a faster or slower series of rate hikes in the future. Given the Fed’s influence on markets as the Fed seeks to normalize rates following two years with supportive policy, any updates from the central bank will be worth monitoring.
That’s it for this week—thanks for reading!