Chicago Purchasing Manager's Index

The latest Chicago Purchasing Manager's Index (Chicago Business Barometer) fell to 35.4 in May from 37.9 in April. This is the sixth straight monthly decline and the lowest level for the index since May 2020. The latest reading is worse than the 41.1 forecast and keeps the index in contraction territory for a sixth consecutive month.

The Chicago PMI assess the business conditions and the economic health of the manufacturing sector in the Chicago region. A value above 50.0 indicate expanding manufacturing activity, while a value below 50.0 indicate contracting manufacturing activity.

Let's take a look at the Chicago PMI since it began. The current level of 35.4 is below the level the index was at for the start of 6 of the 7 recessions that have occurred since its inception.

Here's a closer look at the indicator since 2000.

Source: Jennifer Nash, Advisor Perspectives

Personal Consumption Expenditures

The personal consumption expenditures, or PCE, price index rose 0.3% in April, in line with estimates. The 12-month headline inflation rate held at 2.7%, as expected.

Typically, Federal Reserve decision-making puts more weight on core inflation, which strips out volatile food and energy prices. The core PCE price index rose 0.2% in April, matching forecasts and the smallest increase so far this year.

The 12-month core inflation rate held at 2.8%, as expected.

On an unrounded basis, the core PCE price index rose 0.249%. At first blush, that's not as benign as the 0.2% reading. However, the big picture looks better. Thanks partly to downward revisions to first-quarter inflation data, the Fed's primary core inflation rate registered 2.75% over the past 12 months, which rounded up to 2.8%.

Core inflation hasn't been this low since March 2021.

Supercore Services Inflation

Still, the April inflation data showed that more progress is needed to bring down what Wall Street now calls supercore inflation. This metric unveiled by Federal Reserve chair Jerome Powell in late 2022 measures changes in core service prices excluding housing. This narrower view of price changes was in keeping with the Fed's worry that the tight labor market and elevated wage growth had been at the root of stubbornly high inflation. Wages make up a high percentage of costs for service businesses. Therefore, supercore services inflation should ease as wage pressures moderate.

In April, prices for these core nonhousing services, including health care, haircuts and hospitality, rose 0.265% on the month, after a 0.4% increase in February. 

The 12-month supercore services inflation rate dipped to 3.4% from 3.5% in March, but though it is up from 3.3% at the end of 2023.

Personal Income, Spending

The PCE price index is released with the Commerce Department's monthly personal income and outlays report. Personal income rose 0.3%, matching forecasts. Personal consumption expenditures rose 0.2% in April, below 0.3% estimates. That followed back-to-back gains of 0.7%.

Adjusted for inflation, consumer outlays dipped 0.1% in April. That could lead economists to lower Q2 GDP growth estimates, after tepid 1.3% growth in Q1.

Federal Reserve Rate-Cut Outlook

After April's core PCE inflation data, market pricing showed 50.5% odds that the first Fed rate cut will come by the Sept. 18 policy meeting, up slightly from 49% ahead of the report.

Markets now see 58% odds of no more than one quarter-point rate cut for the full year, down slightly from 60%. That includes a 17% chance that the Fed will leave rates steady.

Source: Jed Graham, Investor's Business Daily

GDP Growth

The economy expanded at a 1.3% seasonally adjusted annual rate in the first quarter of this year, the Bureau of Economic Analysis reported Thursday in a downward revision.

Economists had expected a slight downward revision in the second update, with the consensus forecast expecting GDP growth to be pruned to 1.2%. First-quarter GDP has fallen three-tenths of a percentage point since the preliminary report.

The latest update, the second of three, shows that first-quarter GDP growth was lower than the preceding quarter’s 3.4% clip.

The Bureau of Economic Analysis updates its GDP estimates over the course of several weeks as analysts get a better picture of how the economy performed during the first quarter.

The first quarter’s GDP reading is also a decline from all of 2023, which saw the economy expanded a healthy 2.5%.

The weaker growth in the first quarter was attributable in part to slower consumer spending. That could be a response to the Federal Reserve’s efforts to curb inflation by keeping interest rates higher for longer.

For months, economists have been expected GDP to slow down after the Fed raised its interest rate target to 5.25% to 5.50% in response to too-high inflation. Higher rates typically cause economic output to dampen.

But the previous few quarters of robust GDP numbers have given the Fed some ammunition to keep rates higher for longer, as has the underlying strength in the labor market.

The positive GDP growth has provided a talking point for President Joe Biden in his reelection bid.

The weaker growth in the first quarter was attributable in part to slower consumer spending. That could be a response to the Federal Reserve’s efforts to curb inflation by keeping interest rates higher for longer.

For months, economists have been expected GDP to slow down after the Fed raised its interest rate target to 5.25% to 5.50% in response to too-high inflation. Higher rates typically cause economic output to dampen.

But the previous few quarters of robust GDP numbers have given the Fed some ammunition to keep rates higher for longer, as has the underlying strength in the labor market.

The positive GDP growth has provided a talking point for President Joe Biden in his reelection bid.

Source: Zachary Halaschak, Washington Examiner

Consumer Confidence

U.S. consumer confidence unexpectedly improved in May after deteriorating for three straight months amid optimism about the labor market, but worries about inflation persisted and many households expected higher interest rates over the next year.

The mixed survey from the Conference Board on Tuesday also showed more consumers believed that the economy could slip into recession in the next 12 months. Nonetheless, consumers were very upbeat about the stock market and more planned to buy major household appliances over the next six months.

While the economy is expected to slow this year as a result of the cumulative impact of 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022 to tame inflation, economists and most business executives are not forecasting a downturn.

"Continued positive job growth, rising wages, an ebullient stock market and healthy household balance sheets will keep consumers spending despite elevated prices and borrowing costs," said Oren Klachkin, financial market economist at Nationwide.

The Conference Board said that its consumer confidence index increased to 102.0 this month from an upwardly revised 97.5 in April. Economists polled by Reuters had forecast the index slipping to 95.9 from the previously reported 97.0. It outperformed the University of Michigan's sentiment index.

Confidence remains within the relatively narrow range it has been hovering in for more than two years.

The improvement was across all age groups, with consumers making annual incomes over $100,000 posting the largest increase in confidence. On a six-month moving average basis, confidence remained highest among the under-35 age cohort and those with annual incomes of more than $100,000.

Consumers' perceptions of the labor market also improved, with the survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, widening to 24 from 22.9 in April, though opportunities are probably not as abundant as in the past year.

"The level of this measure remains elevated by historical standards and points to a still strong labor market," said Michael Hanson, an economist at JPMorgan.

The measure closely correlates to the unemployment rate in the Labor Department's employment report. Labor market resilience, mostly characterized by historically low layoffs, is underpinning the economic expansion. Consumers' 12-month inflation expectations rose to 5.4% from 5.3% in April.

"Consumers cited prices, especially for food and groceries, as having the greatest impact on their view of the U.S. economy," said Dana Peterson, chief economist at the Conference Board. "Perhaps as a consequence, the share of consumers expecting higher interest rates over the year ahead also rose, from 55.2% to 56.2%."

About 48.2% of consumers in the survey expect stock prices to increase over the coming year, compared to 25.4% anticipating a decrease.

Stocks on Wall Street were trading higher, with the technology-heavy Nasdaq index (.IXIC), opens new tab breaching the 17,000 level for the first time. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.

HOUSE PRICE GAINS SLOW

Consumers' inflation and interest rate views were likely colored by a surge in price pressures in the first quarter. That, together with still-solid economic growth, has prompted financial markets to push back expectations for the first rate cut from the U.S. central bank to September from June. The Fed has kept its policy rate in the 5.25%-5.50% range since July.

Consumers' perceived likelihood of a recession over the next year rose for the second consecutive month. Despite concerns about higher prices and an economic downturn, consumers are not planning to cut back on spending in a significant way.

The survey's measure of buying plans for major appliances over the next six months rose to 49.4 from 43.0 in April, driven by television sets, refrigerators, vacuum cleaners and clothes dryers.

Buying plans for motor vehicles were unchanged while those for houses dropped amid higher mortgage rates and elevated home prices. On a six-month moving average basis, purchasing plans for homes were unchanged in May at their lowest level since August 2012.

A separate report from the Federal Housing Finance Agency on Tuesday showed house prices increased 6.7% in March on a year-on-year basis after advancing 7.1% in February.

Prices are being driven by a shortage of homes available for sale, and housing costs have been the major driver of inflation.

Though supply is gradually improving, it remains well below pre-pandemic levels.

"We expect home price growth to remain positive in the quarters ahead, with risks skewed to the upside," said Bernard Yaros, lead U.S. economist at Oxford Economics.

"Scarce supply in the resale market, a sturdy labor market, and pent-up demand from Millennials aging into their prime household-formation years argue for potentially firmer house price gains than in our baseline forecast."

Source: Lucia Mutikani, Reuters

United States Economy at a Glance

Hey, America, we totally understand if you're not feeling so great about the economy.

But if you think we're in a recession, here's some good news: We're not in one, and there likely isn't one coming, based on economic data and what experts who talked to Business Insider are seeing.

A Harris poll for the Guardian found 56% of Americans believe the US is in a recession. Plus, it found a majority think we have a shrinking economy. Two reasons people may be feeling like the economy isn't doing so well — despite the US not being in an official recession since the two-month one in early 2020 — are due to media coverage and how people view economic trends.

David Kelly, chief global strategist at J.P. Morgan Asset Management; Eugenio Alemán, Raymond James' chief economist; and Gregory Daco, EY's chief economist, told Business Insider the US isn't in a recession.

"Americans' negative attitude towards the economy is largely due to incessantly negative media coverage of economic and social issues amplified by an even more negative social media feed," Kelly told Business Insider in a statement.

Of course, not everything is perfect, and that could sour people's views. Daco said that when you consider cost fatigue, inflation's cumulative effect, the largely frozen and unaffordable housing market, and also "the reduced amount of churn in the labor market and this perception that there are fewer opportunities out there in terms of jobs, then that leads to more pessimism about the implied state of the economy."

"And I think that's really what we're seeing in terms of this particular survey — is that there is this difference between how people perceive consumer spending trends, inflationary trends, employment trends, and how they are from a data perspective," Daco said, adding "that misperception is exacerbated by the fact that we have different sources of intelligence, different media sources that may bias the underlying take as to how the economy is behaving."

If you're interested in learning more about what's going on with the economy take a look at the charts below.

US GDP is still growing

Kelly listed "growth and expected growth in quarterly GDP" as one of the "most important numbers to watch" in addition to payroll gains — which recently cooled but are still signaling a strong labor market — and the weekly unemployment insurance claims — which have been low as large-scale layoffs have not yet emerged.

Real GDP for the US has continued to be robust, even if growth has been slowing.

Unemployment rates in the US have been low

The unemployment rate did climb from 3.8% in March to 3.9% in April, but that's still low.

"We're still seeing strong job growth momentum," Daco said. "We have a historically low unemployment rate."

In the Great Recession, the US unemployment rate skyrocketed from 5.0% in December 2007 to 9.5% in June 2009. It took years for the job market to fully recover after that recession, while unemployment plummeted after the brief but deep Covid recession in 2020.

CPI data shows US inflation is stubborn but has been under 4%

Inflation is still elevated and stubborn, but the year-over-year change in the Consumer Price Index has cooled from the high 2021 and 2022 rates. Alemán said while inflation is comparatively low, "the surge in inflation since 2021 has pushed Americans to try to figure out what to buy and what not to buy — something that we were not used to doing before."

"Probably the cost of searching for a better price has put a lot of stress into Americans' lives that they did not have before," Alemán said.

The S&P 500 has generally been rising for over a year

In 2024, the S&P 500 hit multiple all-time highs. The Harris poll for the Guardian found nearly half thought the S&P 500 index had actually been down.

There isn't a US recession now or one coming soon either

If you're worried about a recession coming soon, you may feel better knowing that experts don't think so. Alemán said Raymond James doesn't foresee one but expects a slowdown in economic activity. Looking at the next 12 months, Daco said recession odds are relatively low. Kelly said the US isn't "even close" to a recession.

"Indeed, the so-called 'misery index', the sum of the inflation rate and the unemployment rate is currently 7.3%," Kelly said. "This is better, that is lower, than it has been more than 75% of the time over the past 60 years."

There are still some data points and trends Americans may be concerned about. Sales for existing homes and new homes dropped recently. While mortgage rates are back below 7%, they're still elevated. Layoffs are happening at some major companies, inflation is still not back to the Fed's 2% target, and it looks like interest rates are still going to be high for a while.

"The longer we have very, very high interest rates as we have today, that will increase the probability that something will break and that we might face a recession in the future," Alemán said.

So hooray for no recession and likely no recession anytime soon. However, just because we aren't in a recession doesn't mean the economy is perfect.

Source: Madison Hoff, Business Insider

Inflation

Federal Reserve policymakers waiting to see renewed progress on inflation before reducing borrowing costs got some encouraging data on Wednesday with a government report showing inflation eased a bit in April. The 3.4% rise in the consumer price index from a year earlier, and the 0.3% increase from March, shows the Fed still has some distance to go before it achieves its 2% target for inflation.

But the report broke a three-month streak of hotter-than-expected readings that had sapped Fed policymaker confidence in a narrative of steadily easing price pressures. An increasing number of them had warned in recent weeks that rates would need to stay high for longer.

Particularly heartening in Wednesday's report, analysts said, was a slight easing in shelter inflation that policymakers have long expected but had been disappointingly slow to show up in the data. Rent prices rose 0.35% from a month earlier, their slowest pace since 2021, the report showed.

Core CPI, which strips out energy and food prices and is seen as a better gauge of underlying price pressures, rose 3.6%, its slowest in three years.

Analysts crunching the numbers said the CPI data suggests the Fed's preferred inflation gauge, the personal consumption expenditures price index, likely also eased in April.

JP Morgan chief economist Michael Feroli estimated the core PCE gained 2.7% last month from a year earlier, down from 2.8% in March.

The inflation readings are "firmer than the Fed’s inflation goals, but at least are moving in the right direction again after the backsliding seen over the prior few months," Feroli wrote. 

A separate government report showed previously fast-rising retail sales were unchanged in April compared to March.

After the data traders firmed up bets on Fed rate cuts in both September and December, with rate-futures contracts pricing pointing to a year-end policy rate of 4.75%-5%, down from the current range of 5.25%-5.5%.

An early start to rate cuts remained a long shot, based on rate-futures contracts, with pricing reflecting only slightly more than a one-in-four chance of a July rate cut.

Fed Chair Jerome Powell on Tuesday signaled the Fed may need to defer rate cuts until farther into the year to ensure inflation is headed back down to the Fed's 2% goal, but also said he thinks a rate hike at this point is unlikely.

"If there were concerns that they weren't going to cut at all, this just alleviated some of those concerns," said Jason Price, chief of investment strategy and research at Glenmede. "What it doesn't do is put the Fed on a trajectory to begin cutting immediately. They're going to need a couple more reports to get some confidence."

Source: Reuters, Ann Saphir, Ankika Biswas, and Howard Schneider

Stagflation in the U.S. Economy?

Stagflation in the U.S. economy could be a likely scenario in the coming quarters. Investors should be careful because stagflation is the worst of both worlds and makes investing very difficult.

Before going into any details, what is stagflation? In simple terms, it’s when there’s slow economic growth, higher unemployment, and persistent inflation at the same time.

Here’s some perspective on why the case for stagflation in the U.S. economy is getting stronger.

The U.S. economy is starting to crack. The vast majority of U.S. gross domestic product (GDP) is based on consumption, and it’s starting to look like consumption could be getting hurt. If U.S. consumption goes down, so will the U.S. economy.

U.S. consumers are starting show signs of financial stress. Take a look at the chart below; it plots the U.S. delinquency rate for credit card loans at all commercial banks.

In the first quarter of 2022, the delinquency rate for credit card loans was around 1.67%. At the end of the fourth quarter of 2023, the rate was 3.1%, which was more than a decade high. Worth noting is that the credit card delinquency rate rose to more than a decade high in just a few quarters.

If this trend continues, will consumers go out and spend? It’s unlikely.

Delinquency Rate on Credit Card Loans, All Commercial Banks

But that isn’t all.

Recently in the U.S., the housing market has been slowing, the rate of construction growth has also been slowing, retail sales have been stagnating, the personal saving rate has been dismal, and the list goes on.

Job Cuts Growing & Hiring Isn’t

Now, what’s been happening on the employment front? It’s not looking good.

Take a look at the April 2024 “Challenger Report,” which is issued by Challenger, Gray & Christmas, Inc., a global outplacement and business and executive coaching firm. The company’s monthly report tracks the number of job cuts announced by U.S.-based firms.

Year-to-date (as of the end of April), U.S. companies announced 322,043 job cuts. Moreover, the amount of time it takes to find a job in the U.S. has been increasing. The average job search lasted 3.05 months in the first quarter 2024. That’s compared to 2.71 months in the first quarter of 2023. 

Hiring numbers haven’t been looking good, either. In the first four months of 2024, U.S. employers announced plans to hire 46,597 workers. This is a lower total for the first four months of a year since 2016!

U.S. Inflation Has Been Sticky

Lastly, when it comes to inflation, it’s been sticky.

Certainly, the rate of inflation in the U.S. economy has come down lately, but it remains above the range that the Federal Reserve has been targeting: between two and three percent.

In the first three months of 2024, the Consumer Price Index (CPI)—an official measure of inflation at the consumer level—increased by 1.1%. 

Assuming this pace continues, the annual rate of inflation in the U.S. for 2024 could end up being well over four percent!

What to Do if Stagflation Takes Control

Dear reader, as I said earlier, the case for stagflation in the U.S. continues to get stronger.

In a recent press conference, the Fed’s chairman, Jerome Powell, hinted that he doesn’t see any stagflation. But don’t take those words too seriously. We could very well be in the early stages of stagflation, just not full-blown stagflation. The Fed will eventually come to terms with it and call it what it is.

Note that the Fed was very wrong about how long higher-than-normal inflation would stick around.

For investors, stagflation is the worst of both worlds: a slowing economy at the same time as higher inflation.

In times of stagflation, being defensive can pay, versus being aggressive. Growth stocks and consumer discretionary plays could get hurt badly. Meanwhile, gold, utilities, and consumer staples could outperform the overall market.

Source: Lombardi Letter, Moe Zulfiqar

Is the Economy As Bad as Americans Think?

A majority of Americans think that the U.S. economy is heading in the wrong direction, according to an exclusive poll for Newsweek, with many blaming Joe Biden's economic agenda—Bidenomics—for it.

But experts told Newsweek that the U.S. economy is doing relatively well, especially when compared to most other Western economies. The negative outlook on the economy that many Americans hold is likely linked to the fact that the economic picture is objectively complicated and hard to understand right now.

"The combination of economic indicators is confusing even for economists who spend all their time looking at these numbers," Stephan Weiler, a professor of economics at Colorado State University, told Newsweek. "This is just a very unusual combination of fiscal monetary and global circumstances, and that uncertainty is translating into pessimism."

According to John Van Reenen, Ronald Coase Chair in Economics and School Professor at the London School of Economics (LSE) in London and Digital Fellow, Initiative for the Digital Economy at the Massachusetts Institute for Technology (MIT), part of the unhappiness with the U.S. economy is also a "hangover" from the rise of inflation which followed the pandemic.

"Prices are coming down but that increase is still fresh in people's memories," he told Newsweek. "Governments all over the world are being punished for that bad experience, and I think that's part of what's happening in the U.S.," Van Reened added. "It's ironic, because, compared to other advanced countries, the U.S. is doing fantastically well in terms of growth."

Many Americans, however, don't see it like Van Reenen.

Their widespread pessimism is reflected in the results of a Redfield & Wilton Strategies poll conducted on behalf of Newsweek on April 11. According to the survey, some 50 percent of Americans believe that the U.S. economy is heading in the wrong direction, while only 25 percent said it is going in the right direction.

Americans are also negative about their own financial situation. Some 42 percent of respondents said their financial situation has worsened in the last year. Only 26 percent said it has improved, while 32 percent said it has stayed the same.

Some 47 percent of Americans said they were now financially worse off than they were three years before, against 26 percent who said they were better off and 27 percent who said they were about the same. Some 45 percent said they were now worse off than before the pandemic, while 28 percent said they were better off and 27 percent were about the same.

The poll was based on interviews with 1,500 eligible voters in the country.

But despite the malaise shared by millions of Americans, economists insist that the U.S. economy "is in a relatively good place," as Weiler said.

"The fact that we're talking about a soft landing coming out of a pandemic—an event that would normally be followed by a huge economic fallout—instead of a recession is tribute to the fact that there was both good monetary policy and fiscal policy during the key periods of 2020, 2022 and 2023," he added.

Here's how the economy is doing, explained by Weiler and Van Reenen.

Inflation Is Stubborn But Remains On Its Way Down

Inflation is now much lower than in the summer of 2022 when it reached a peak of over 9 percent. But the latest data shows that it remains stubborn: in March, inflation rose by a stronger-than-expected 3.5 percent, higher than February's year-over-year 3.2 percent increase.

"Inflation hasn't come down by as much as the markets were expecting, that's true," Van Reenen said. "And there's been some revisions about expectations of interest rate cuts. That's going to be a bit of a headwind, but if you look at core inflation, it still seems to be coming down over the last six months compared to what it was before," he added.

While consumers are now paying more for things like gas prices, car repair costs and car insurance, the cost of other goods—including grocery—have been flat for months and only went up by a modest 1.2 percent in the last year. In short, it doesn't look like inflation is on its way to climb back up—which means the Federal Reserve is still likely to cut interest rates this year.

"That might not happen as quickly as I thought, but it's not been a dramatic revision," Van Reenen said of the latest data. "I think the overall picture is still a strong one."

Wages Are On The Rise, But Americans Have Less Savings

The strong U.S. labor market has allowed the economy to remain strong and consumers to continue spending even as their savings started to dwindle after the pandemic.

"Americans say the economy is bad, but they keep spending like the economy is good," Weiler said. "Pre-COVID, personal savings were at about 4 percent of income. In the most recent readings, it was down to 3.2 percent of income."

Americans' eagerness to spend—sometimes beyond their means—even as they remain profoundly pessimistic over the state of the U.S. economy has baffled economists, though their you-only-live-once attitude (YOLO) can be explained as a reaction to the shared dramatic experience of the pandemic.

The fact that Americans' spending ability hasn't been completely eroded by the rise of inflation in the past couple of years, on the other hand, is mainly due to the labor market and the rise of wages, which have been growing faster than inflation in recent months.

Employers in the U.S. added 303,000 jobs in March and nearly three million in the past year. The unemployment rate dipped to 3.8 percent in the same month. Wages went up by 0.3 percent from the previous month and 4.1 percent year over year. Biden described the report as "a milestone in America's comeback."

In April, there was a slight slowdown in the pace of hiring: employers added 175,000 jobs and unemployment ticked up to 3.9 percent. But overall, even as the job market shows signs of slowing, the numbers are still positive.

"Relative to inflation, wages and salaries are actually doing relatively well," Weiler said. If Americans don't see these as positive indicators for the U.S. economy overall, it's because they "believe they have earned their wages and salaries themselves, while the country is responsible for inflation," Weiler said.

"Whoever is running the country is letting them down by having inflation increase. They don't see that the two are actually related," he added.

The Hottest Issue Of The Year

Some 59 percent of respondents to the Redfield & Wilton Strategies/Newsweek poll said that the most important issue in the country today is the economy. That was up from 56 percent who said the same the month before—so we know that this is going to be a very big issue at the November election.

Whether the current state of the U.S. economy is going to favor Biden or his rival Donald Trump is likely to depend more on voters' opinion of it rather than what's actually going on.

Some 48 percent of respondents to the poll for Newsweek think that Biden's economic agenda—Bidenomics—is actually moving the U.S. economy in the wrong direction, while 27 percent think it's helping stir it in the right direction.

Economists disagree. "I actually think that the Biden administration did an important job of getting us out of what could have been a pretty serious COVID-19 recession," Weiler said. "I think that the stimulus that they [the Biden administration] passed soon after he took office was actually important in keeping us from having a recession."

According to Van Reenen, what Americans are saying in response to questions and surveys "is different from what they're actually experiencing. And the reason for that, I believe, is just the intense polarization that we have in the U.S."

The MIT economist said there's evidence that "if you're a Republican, even if you're doing well, you say you're not doing well because you don't like President Biden's. And it was the same, reversed, when President Trump was in power."

People's perception of the economy is going to be very important in November, Weiler said, but "I personally don't think that the Biden administration has much responsibility for the economy at this point anymore."

Source: Newsweek, Giulia Carbonaro

URC at UNH

The Undergraduate Research Conference (URC) is a celebration of academic excellence at the University of New Hampshire. In 2024, the URC celebrated its 25th year during a series of events, running from April 22 to 26. More than 2,000 UNH undergraduate students, from all academic disciplines, presented at the URC. The presentations showcased the results of students' research, scholarly, and creative projects in over 20 professional and artistic venues at both campuses (Durham and Manchester), making the UNH URC one of the largest and most diverse conferences of its kind in the country.

The URC session in the Peter T. Paul College of Business and Economics was held on Friday, April 26. Below is a list of the of the research projects conducted by ECON B.S. capstone students:

Laura Earle
The Regional Greenhouse Gas Initiative's Effects on Renewable Energy Generation 

Cole Fuller
Why Teachers Are Undervalued: Comparing Jobs and Pay Rates

Dylan Stiles
Examining the Risk of Tommy John Surgery by Pitch Characteristics 

Michael Siemering
Factors Affecting the Belief in God

Sarah Glennon
Factors Affecting Obesity in the United States

Olivia Graves-Witherell
Student Loans and the U.S. Economy

Samuel Gobeil
Competitiveness of Renewable Energy 

Tyler Wittmann
Automobile Electrification and the Labor Market

Braden McDonnell
Demographics and Saving Rates

James Schneider

The Impact of Higher-Education Attainment Rates on the U.S. Labor Market

Brooke Conroy
Labor Unions and Wage Inequality

Giovanni Ciardiello
Immigration and The U.S. Economy

Andrew Otersen

Productivity - Compensation Gap

Mody Abdel-Salam
Understanding the Rising Food Prices

Thomas Pattison
Electricity Prices and the New England Energy Market

Hanlon Paul
Factors Affecting the Increase in the National Debt

Patrick Walker
Flood Risk and Property Value Assessments

Zack Leduc
Suez Canal and Oil Prices

Employment Situation

The U.S. economy added fewer jobs than expected in April while the unemployment rate rose, lifting hopes that the Federal Reserve will be able to cut interest rates in the coming months.

Nonfarm payrolls increased by 175,000 on the month, below the 240,000 estimate from the Dow Jones consensus, the Labor Department’s Bureau of Labor Statistics reported Friday. The unemployment rate ticked higher to 3.9% against expectations it would hold steady at 3.8%.

Average hourly earnings rose 0.2% from the previous month and 3.9% from a year ago, both below consensus estimates and an encouraging sign for inflation.

The jobless rate tied for the highest level since January 2022. A more encompassing rate that includes discouraged workers and those holding part-time jobs for economic reasons also edged up, to 7.4%, its highest level since November 2021. The labor force participation rate, or those actively looking for work, was unchanged at 62.7%.

Wall Street already had been poised for a higher open, and futures tied to major stock market averages added to gains following the report. Treasury yields tumbled after being little changed before the release. The report raised the prospect of a “Goldilocks” climate where growth continues but not at such a rapid pace to force the Fed to tighten policy further.

“With this report, the porridge was just about right,” said Dan North, senior economist at Allianz Trade. “What would you like at this point the cycle? We’ve had interest rates jacked up pretty high, so you would expect to see the labor market slow down a little. But we’re still at pretty high levels.”

Consistent with recent trends, health care led job creation, with a 56,000 increase.

Other sectors showing significant rises included social assistance (31,000), transportation and warehousing (22,000), and retail (20,000). Construction added 9,000 positions while government, which had shown solid gains in recent months, was up just 8,000 after averaging 55,000 over the previous 12 months.

Revisions to previous months took the March gain to 315,000, or 12,000 from the initial estimate, and February to 236,000, a decline of 34,000.

Household employment, which is used to calculate the unemployment rate, increased by just 25,000 on the month. Workers holding full-time jobs soared by 949,000 on the month, while those hold part-time jobs slumped by 914,000.

The report comes two days after the Fed again voted to hold borrowing costs steady, keeping its benchmark overnight borrowing rate in a targeted range between 5.25%-5.5%, the highest in more than 20 years.

Following the decision, Chair Jerome Powell characterized the jobs market as “strong” but noted that inflation is “too high” and this year’s economic data has indicated “a lack of further progress” in getting inflation back to the Fed’s 2% target.

But market action shifted after the jobs report indicated an easing labor market and softer wage increases. Traders priced in a strong chance of two interest rate cuts by the end of 2024, with the first reduction expected to come in September, according to CME Group data.

“This is the jobs report the Fed would have scripted,” said Seema Shah, chief global strategist at Principal Asset Management. “The first downside payrolls surprise in several months, as well as the dip in average hourly earnings growth, will bring the rate cutting dialogue back into the market and perhaps explains why Powell was able to be dovish on Wednesday.”

Though inflation has come well off its highs in mid-2022, it is still considerably above the central bank’s comfort zone. Most reports this year have shown inflation around 3% annually; the Fed’s own preferred measure, the core personal consumption expenditures price index, most recently was at 2.8%.

Higher prices have been putting upward pressure on wages, part of an inflation picture that has kept the Fed on the sidelines despite widespread market expectations that the central bank would be cutting interest rates aggressively this year.

Most Fed officials in fact had been mentioning the likelihood of reductions in their public comments. However, Powell at his post-meeting news conference Wednesday made no mention of the likelihood that rates would be lowered at some point this year, as he had in the past.

Source: CNBC

Federal Reserve FOMC Meeting

Given economic reports over the last few months, there was no surprise that the Federal Open Market Committee of the Federal Reserve decided to hold the benchmark federal funds rate target range steady at 5.25% to 5.50%.

While reporters kept asking for timelines or indications of how things might change going forward, Fed Chair Jerome Powell made a couple of remarks that suggest there would be no cut until the September FOMC meeting at the earliest, making three cuts highly unlikely and even putting pressure on expecting two.

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the post-vote FOMC statement said.

“The strength of the labor market buys the Federal Reserve time to be patient before normalizing monetary policy,” said Oxford Economics in an emailed statement. “The timing of the first rate cut depends on a sustained moderation in inflation after a hot start to the year. Our baseline assumes the Fed will start to cut rates in September, but the risks are tilted toward a later start.”

During the press conference after the statement, multiple reporters looked for insight into what would make the Fed reconsider and under what timetable. Powell kept to the usual statements about decisions depending on data — he was insistent that politics doesn’t play a role — and that when the central bank was confident about making changes, it would.

However, he made a couple of statements that almost guarantee September as being the absolute earliest they would consider lowering rate. Powell mentioned that the FOMC had been feeling more confidence and didn’t want to change directions on a month or two of data, but that there had now been a solid quarter where inflation was getting hotter, which reduced their confidence on how things were proceeding.

If it took a full quarter to reduce confidence, it would seem likely at least another quarter of data would be necessary to change sentiment again. Q2 data won’t be fully in until July. Assuming things don’t suddenly readjust themselves by then to be clearly where they were in December, that would make August still seem early, leaving September as the first likely time for a decrease. And that that point, that leaves only the November and December meetings, so under best conditions, two cuts might be possible. But the Fed again might way until January 2025 to see how the economy was doing after one change.

On a brighter side was this part of the statement: “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.”

“Some good news from today’s meeting was the Fed’s announcement that it would adjust the quantitative tightening program to allow less runoff of the Fed’s securities each month commencing in June,” said Marty Green, principal and mortgage law firm Polunsky Beitel Green, in emailed remarks. “Over time, this adjustment should have some positive impact on interest rates without the Fed needing to adjust the Fed funds rate.”

Source: Erik Sherman (GlobeSt)

Debt Ceiling

It’s not quite a done deal. Congress will vote on the “Fiscal Responsibility Act” tomorrow, and the Senate probably by Friday. But it looks like the US will once again stop punching itself in the face just before needing hospitalisation (for two years at least).

We discussed the financial implications of the deal yesterday, with the US government needing to issue a deluge of Treasury bills to rebuild its reserves in the coming months, and the impact that could have on funding markets.

But here’s Goldman Sachs on the fiscal and economic implications of the slight austerity that the deal entails:

"The main source of budgetary savings in the deal is a two-year cap on federal discretionary spending. Congress appropriates this segment of spending annually and it accounts for around 25% of total federal spending, with slightly more than half dedicated to defense and the remainder to other “non-defense” spending (generally domestic programs outside of the major benefit programs). We expect the Congressional Budget Office (CBO) will estimate that the spending caps in the deal will reduce discretionary spending by $1.5 trillion over the next 10 years and reduce interest expense by around $160-170bn over that period. On paper, this would reduce projected deficits over the next decade by an average of 0.4-0.5% of GDP.

That said, the actual spending cut is likely to be much smaller, for two reasons. First, the caps apply for only two years, so most of the projected savings will depend on policy decisions made after the next election. (The description of the deal states that caps apply for 6 years, but they are only enforceable via sequestration for 2024 and 2025 and should have little effect thereafter.) Second, the deal included other details that lessen the effect of the cuts, particularly in 2024. This includes counting the bill’s rescissions of unused COVID funding against spending for the coming year, pre-funding certain items so the spending is excluded from the caps, and a side agreement that $20bn in IRS enforcement funding that would have been spent later in the decade will be redirected toward domestic spending without counting toward the cap. With these adjustments, the White House has indicated it believes non-defense spending will be roughly flat in nominal terms in FY24 compared with this year."

Aside from the headline fiscal restraints, the deal will also affect more specific issues like student loans, work requirements, and environmental reviews, and introduces a (toothless) pay-as-you-go rule for the US government.

Here’s Goldman’s Alec Phillips:

"The agreement prohibits the Biden Administration from extending the pause on student loan repayments in place since March 2020, but it does not block the Administration’s student loan forgiveness plan, which the Administration announced last year but has not yet implemented. Late last year, the Administration extended the repayment pause, which postpones roughly $5bn per month in student loan repayments, until 60 days after the Supreme Court ruled on the separate $400bn loan forgiveness plan the (the Supreme Court is likely to rule on loan forgiveness in June, so this likely would have meant a restart of payments after August 2023). The debt limit agreement prohibits further extension of the payment pause, but is silent on the student loan forgiveness plan. Prior to the announced debt limit deal we had already assumed the repayment pause would end on schedule, though there was clearly a chance the White House might have extended it once again. The debt limit agreement eliminates that possibility and should result in a restart of student loan payments in September 2023.

The bill also includes a few narrower policies that look likely to have a limited macroeconomic impact:

– Work requirements. The bill would incrementally modify work requirements under Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP), formerly known as welfare and food stamps. No official savings estimate from the Congressional Budget Office (CBO) is available, but we expect the overall fiscal effect of these changes to be relatively minor.

– Environmental reviews. The bill includes policies to incrementally streamline reviews for infrastructure projects under the National Environmental Policy Act (NEPA). These are generally seen as a down payment on broader energy permitting reform that could be attached to other legislation later this year.

– Executive PAYGO. The debt limit deal also codifies a “pay-as-you-go” (PAYGO) rule for executive branch rulemaking, requiring federal agencies to offset any policy action that increases direct spending by more than $100mn/yr with another policy to cut spending at least as much. However, the Director of the White House Office of Management and Budget (OMB) has power to waive the requirement and decisions could not be reviewed by courts, so it is unlikely to have much practical effect."

Source: Financial Times

Consumer Confidence

Consumer confidence fell in May as Americans became more pessimistic about the labor market, on top of elevated anxiety over inflation.

The Conference Board reported Tuesday that its consumer confidence index fell to 102.3 in May from 103.7 in April. It’s the fourth time in five months that overall U.S. consumer confidence has declined.

The business research group’s present situation index — which measures consumers’ assessment of current business and labor market conditions — fell to 148.6 from 151.8 last month.

The board’s expectations index — a measure of consumers’ six-month outlook for income, business and labor conditions — inched down to 71.5 this month from 71.7 in April.

A reading under 80 often signals a recession in the coming year. The Conference Board noted that reading has come in below 80 every month but one since February of 2022.

Source: AoL News

Unemployment

The U.S. economy added 253,000 new jobs in April, up from a downwardly revised 165,000 in March, according to the Bureau of Labor Statistics (BLS). This was higher than the market estimate of 180,000.

Employment gains were revised down for February by 78,000 to 248,000 and changed downward for March by 71,000 to 165,000.

The unemployment rate edged lower to 3.4 percent, down from 3.5 percent and below economists’ expectations of 3.6 percent.

Average hourly earnings rose to 4.4 percent year-over-year, slightly higher than 4.3 percent in March. On a monthly basis, average hourly earnings climbed 0.5 percent, up from 0.3 percent.

Average weekly hours were unchanged at 34.4. The labor force participation rate was also flat at 62.6 percent.

Employment gains were broad-based, led by professional and business services (43,000), health care (40,000), leisure and hospitality (31,000), financial activities (23,000), and government (23,000).

“Employment was little changed over the month in other major industries, including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, and other services,” the BLS reported.

Eric Winograd, the chief economist and strategist at AllianceBernstein, told Morningstar that employment growth below 100,000 would be considered “weakening.” He does not see job losses until the second half of 2023.

“Though jobs growth has already started to slow, we haven’t seen job losses yet,” Winograd says. “As we move into the second half of the year, we will see some negative months, but the data suggests we’re still a long way from that.

The number of people working two or more jobs remained elevated at 7.707 million. The number of individuals employed part-time for economic reasons was little changed at 3.9 million. The number of people not in the labor force but who want a job surged by 346,000 to 5.3 million.

After the jobs data, financial markets were hovering in positive territory in pre-market trading, with the leading benchmark indexes up about 0.4 percent.

The U.S. Treasury market was mostly positive across the board, with the benchmark 10-year yield adding nearly 10 basis points to around 3.45 percent.

The U.S. Dollar Index (DXY), a measurement of the greenback against a basket of currencies, popped 0.3 percent to above 101.70.

“April delivered another month of jobs results that beat economists’ expectations as the labor market remains resilient,” said Cody Harker, the Head of Data and Insights at recruitment marketing firm Bayard Advertising. “Despite a general cooling trend, the market pushes forward once again, driven by solid momentum in COVID-sensitive verticals and continued consumer spending on services.”

So, what does this mean for the Federal Reserve?

Strong wage growth and lower joblessness offer the central bank more flexibility in its tightening cycle, market experts say.

“It has been the one major sticking point in the Fed’s inflationary battle as unemployment remains at historical lows. While it tends to be a lagging inflationary signal, it is important for the Fed to see the labor market cool – now more than ever,” said Jay Woods, the chief global strategist at Freedom Capital Markets.

The U.S. labor market has sent mixed signals since the beginning of the year.

Mixed Data

After two strong job reports in January and February, conditions had ostensibly cooled. There have been more layoffs, a decline in job openings and quits, slowing wage growth, and tighter credit conditions forcing employers to prioritize.

This past week, the employment data offered different indicators.

Employment levels in the manufacturing sector, for example, might have rebounded in April, according to the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI). The sub-index touched expansion territory for the first time since January, rising from 46.9 to 50.2.

Tech layoffs might have also eased in April. The monthly Challenger job cuts data showed that retail led all industries with nearly 15,000 layoffs, topping the technology sector (11,553).

Moreover, labor costs unexpectedly surged in the first quarter, BLS data showed on May 4. Unit labor costs advanced to 6.3 percent in the January-to-March period, up from 3.3 percent in the fourth quarter and higher than the market estimate of 5.5 percent. Plus, non-farm productivity tanked 2.7 percent, down from 1.6 percent in the previous three months.

As credit conditions continue to tighten in the fallout of the Silicon Valley Bank, Signature Bank, and First Republic failures, the U.S. labor market might still be absorbing economic conditions.

Source: Andrew Moran - NTD

Private Payrolls

Private payrolls rose by 296,000 for April, above the downwardly revised 142,000 the previous month and well ahead of the estimate for 133,000.

The fastest job growth in April came in leisure and hospitality with a gain of 154,000, followed by education and health services (69,000) and construction (53,000).

The financial sector lost 28,000 jobs for the month. Manufacturing also took a hit, losing 38,000 jobs.

Hiring at private companies unexpectedly swelled in April, countering expectations for a cooling job market ahead, payroll processing firm ADP reported Wednesday.

Private payrolls rose by 296,000 for the month, above the downwardly revised 142,000 the previous month and well ahead of the Dow Jones estimate for 133,000. The gain was the highest monthly increase since July 2022.

The surge comes despite Federal Reserve efforts to slow economic growth and in particular to tame a powerful labor market that has added more than 800,000 jobs this year by ADP’s count. An imbalance of demand over supply in the labor market has created strong wage gains that are reflected in persistent inflation pressures.

One positive sign for the Fed is that annual pay rose 6.7% over the past year, a deceleration from gains that had been consistently coming in above 7%.

“The slowdown in pay growth gives the clearest signal of what’s going on in the labor market right now,” Nela Richardson, ADP’s chief economist, said. “Employers are hiring aggressively while holding pay gains in check as workers come off the sidelines.”

The firm’s report serves as a precursor to the Labor Department’s more closely watched nonfarm payrolls count due out Friday. Economists surveyed by Dow Jones expect that data to show an increase of 180,000 following March’s 236,000. The two reports often differ, sometimes by large margins.

According to ADP, the fastest job growth in April came in leisure and hospitality with a gain of 154,000, followed by education and health services (69,000), and construction (53,000). Other sectors posting solid increases included natural resources and mining, with 52,000, and trade, transportation and utilities, which added 32,000.

The financial sector, beset by deposit runs that have led to the closure of three mid-sized banks, lost 28,000 jobs for the month. Manufacturing also took a hit, down 38,000 jobs, as the sector has been in contraction for the past six months.

Job gains were fairly evenly distributed across company size, with firms employing fewer than 500 employees contributing 243,000 to the total.

Source: CNBC

Manufacturing PMI

U.S. manufacturing pulled off a three-year low in April as new orders improved slightly and employment rebounded, but activity remained depressed amid higher borrowing costs and tighter credit, which have raised the risk of a recession this year.

Manufacturing PMI rises to 47.1 in April.

ISM said 73% of manufacturing GDP contracting.

New orders improve moderately; prices paid pick up.

Despite the weakness in factory activity and demand for goods reported by the Institute for Supply Management (ISM) on Monday, there was a build-up of inflation pressures last month.

This supports expectations that the U.S. Federal Reserve will raise interest rates by another 25 basis points to a 5%-5.25% range on Wednesday before potentially pausing its fastest monetary policy tightening campaign since the 1980s.

"The economy will likely slide into recession later this year," said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.

"The persistent pricing pressure on manufacturers should abate in the coming months. Still, the Fed will likely hike rates this week and perhaps start telegraphing their likely decision to pause the rate-hiking campaign later this summer."

The ISM said its manufacturing PMI increased to 47.1 last month from 46.3 in March, which was the lowest reading since May 2020. Economists polled by Reuters had forecast 46.8.

It was the sixth straight month that the PMI remained below 50, which indicates contraction. And activity could remain subdued as the ISM noted that customers' inventory levels "are now at the low end of the 'too high' level," and "likely not conducive to future output growth."

Though a separate S&P Global survey showed manufacturing expanding for the first time in six months in April, factories continued to report hesitancy among customers to place orders because of higher prices and economic uncertainty.

The ISM says a PMI reading below 48.7% over a period of time generally indicates the economy is in recession.

The ISM said 73% of manufacturing gross domestic product was contracting, up from 70% in March. But it noted that fewer industries declined sharply.

"The proportion of manufacturing GDP with a composite PMI calculation at or below 45 percent - a good barometer of overall manufacturing weakness - was 12 percent in April, compared to 25 percent in March," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

Only two of the six biggest manufacturing industries, petroleum and coal products as well as transportation equipment, reported growth.

Source: Reuters