Chief Economist Scott Brown discusses the latest market data.
Real GDP fell at a 1.4% annual rate in the advance estimate for 1Q22, reflecting slower inventory accumulation, lower exports, and a drop in government consumption and investment. Imports, which are a subtraction in the GDP calculation, increased. Real consumer spending rose at a moderate 2.7% annual rate. Business fixed investment rose 9.2%. Net exports subtracted 3.20 percentage points from the headline growth figure, while the change in inventories subtracted 0.84 percentage points. Personal income rose 0.5% in March, while spending rose 1.1% (up 0.2% adjusting for inflation). The PCE Price Index rose 0.9% (+6.6% y/y), up 0.3% (+5.2% y/y) ex-food and energy.
The Employment Cost Index, the preferred measure of labor cost pressures that’s followed closely by Fed policymakers, rose 1.4% over the three months ending in March, up 4.8% from a year ago. The merchandise trade deficit jumped to $125 billion in the advance estimate for March, vs. $106.3 billion in February. Exports rose 7.2% (+18.1% y/y), while imports rose 11.5% (+25.6% y/y), not adjusted for inflation.
Next week: The focus will be on the Federal Open Market Committee (FOMC) policy statement and Chair Powell’s press conference (Wednesday). The FOMC is widely expected to raise the target range for the federal funds rate by 50 basis points (to 0.75% to 1.00%) and announce the start of its balance sheet unwinding (ramping up to $95 billion per month in three months and likely starting at about a third of that). Additionally, the FOMC is expected to signal further rate increases at the next policy meeting (June 14 to 15). We won’t get revised Fed forecasts or a new dot plot at this meeting. The April employment report (Friday) is expected to show a strong gain in nonfarm payrolls (around +450,000 seasonally adjusted ±200,000, and we can expect to add more than a million jobs before seasonal adjustment) and a low unemployment rate (3.5% to 3.6%).
As of close of business 4/28/2022