A week of transition: economic updates amid a new administration
Summary
Last week was a relatively light week of economic reporting. Between the reports that were released and the flurry of activity from the new administration, there was no shortage of news. Equity markets climbed higher with the S&P reaching a record close, while fixed-income markets were relatively flat, and the 10-year U.S. Treasury yield closed at 4.634%. Finally, the dollar declined as President Trump signaled a less aggressive stance on raising tariffs against China.
New administration takes over
Last Monday’s inauguration marked the beginning of President Trump’s second term in office. As promised during his campaign, President Trump signed a slew of executive orders on his first day in office reversing many of the prior administration’s policies surrounding immigration, energy, and trade. President Trump also ordered a freeze on hiring new government employees (with carve outs for national security positions among others) while his new administration takes over leadership. As a reminder, government job growth has been very strong over the past 12 months, second only to education and health services and contributing significantly to the higher than expected job reports. Finally, President Trump sent a clear message in his address to the World Economic Forum in Davos. In his speech, he called on Saudi Arabia to lower oil prices and sent a message to the Fed that he would like lower interest rates, stating, “I will demand lower interest rates immediately.” He also promised lower tax rates for companies that produce in the U.S. and told large U.S. banks to start lending to conservatives. Although many of these moves face legal and procedural hurdles, the administration has set a clear tone of rapid action.
Source: U.S. Bureau of Labor Statistics
Other key economic releases
Although the new administration stole the show throughout the week, there were a few notable economic releases. The U.S. Leading Indicators Index was released, showing a decline of 0.1% after an unexpected uptick last month. Jobless claims climbed above expectations to 223,000, consumer sentiment missed expectations dropping to 71.1 from the prior reading of 73.2, and flash PMI showed a composite index reading of 52.4, well below the prior reading of 56.6. In addition, flash PMI showed a large decline in the services component, dropping to 52.8 after a prior reading of 58.5 and existing home sales were at 4.24M, slightly higher than expectations.
From an international perspective, the Bank of Japan raised the policy rate by 25 bps, which was widely expected. A number of PMIs across Europe were also released largely in line with expectations but pointed to continued growth challenges.
The week ahead
It will be a busy week with the Federal Open Market Committee (FOMC) meeting taking center stage this Wednesday. The releases of new home sales, durable goods, consumer confidence, GDP, and PCE will also be closely watched by investors.
New podcast episode
Jackie Bowie and Moritz Sterzinger reflect on key insights from a recent interview with Jonathan Goldstein. This episode dives into navigate difficult times by embracing agility, fostering collaboration, and making well-informed decisions.
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