Assessing economic indicators: insights ahead of the Federal Reserve meeting

CPI and core CPI

CPI rose 0.40% last month, due to the rise in gas prices and housing costs. Core CPI, the rate that omits food and energy from the equation, also rose 0.40% for the month. However, the twelve-month core rate dropped to 3.80% from 3.90%. This indicator is a better predictor of price trends and although down from the 3.90% rate recorded during December and January, it still rose above the expected rate of 3.70% year-over-year. Chairman of the Federal Reserve, Jerome Powell, and the Federal Open Market Committee (FOMC) are on the lookout for more sustained evidence that inflation is cooling before they move to cut interest rates. Given this most recent report, experts say it could be a while longer before we get monetary easing out of the next Fed meeting.

PPI and core PPI

The Producer Price Index, a key indicator of pipeline across raw, intermediate, and finished goods stages, notably exceeded forecasts in February with an increase of 0.60%, exceeding the forecast of 0.30%. Following the 0.30% increase from January, this upward trend may be indicative of accelerating wholesale prices. Core PPI, which strips out the food and energy sectors, also went through a notable increase of 0.30%, which is higher than the forecasted 0.20%. This is a significant uptick as it may suggest that the underlying inflationary trends are expected beyond just the more unpredictable food and energy sectors. As with the CPI and core CPI numbers, these increases in PPI are critical to take into consideration when looking at the Fed’s upcoming meeting. The increases may result in a more cautious stance, with the rate cuts hoped for by many potentially encountering further delays.

U.S. retail sales and initial jobless claims

U.S. retail sales rebounded in February, with sales at stores, online, and in restaurants rising 0.60% in February from January. After a decrease of 1.10% in sales during the first month of 2024, sales were up across most categories in February, most significantly at home improvement stores, up by 2.20%. Economists mostly attributed the decrease from January to cold weather keeping consumers at home. Along with the increase in sales, this week’s jobless claims dropped by 1,000 to 209,000, a sign of a strong labor market and low levels of layoffs. This year’s weekly claims have ranged from 194,000 to 225,000, which are extremely low levels when looking at these values historically. Given the strong labor market, it seems unlikely that the economy will begin to slow its growth, despite some signs of loosening, said Nancy Vanden Houten, lead Economist at Oxford Economics.

Consumer sentiment

Consumer sentiment fell slightly this month from a 32-month high, an indication that many Americans are feeling some uncertainty as to how the economy will continue to perform. Even while close to a two-year high, this number is still well below the pre-pandemic peak of 101. Survey director Joanne Hsu commented, “Consumer views have stabilized into a holding pattern”, with the perception that there are few signals of the economy currently improving or deteriorating. Considering the data released this week, even with the rise in CPI and PPI and a slight increase in retail sales, it makes sense that consumers are taking cautious stances on how to feel about the economy’s performance.

The week ahead

The Fed meets next week to decide on how to proceed with interest rates. Looking at the data from this week, it seems to many that a rate cut is unlikely, especially when considering Chair Powell’s cautious stance on rates over the past year. Markets will also be looking to the release of services and manufacturing PMI numbers, as well as U.S. leading economic indicators.