Week in Review: April 7, 2023
April 10, 2023
Recap & Commentary
Markets ended the holiday-shortened week little changed as investors digested a spate of economic data as well as a surprise cut to oil production by OPEC+. Reflecting concerns about weaker economic data, yields fell slightly with the 10-Year U.S. Treasury dropping 0.06%, to end the week at 3.41%. Sentiment has changed of late with investors now viewing weaker economic data as “bad.” Prior to the collapse of Silicon Valley Bank, investors would have welcomed weaker economic data as it would have been seen as relieving pressure on the Federal Reserve to raise interest rates. Now, following the market turmoil created by Silicon Valley Bank, investors believe the Federal Reserve is close to, if not already at, the end of its rate hike cycle. As a result, weaker economic news is simply being viewed as “bad” from the standpoint of a possible recession.
OPEC+ countries surprised markets at the start of the week by announcing a 1.2 million barrel per day cut to production starting in May and lasting through the end of the year. US oil futures jumped $4.75 on the news, the largest one-day dollar gain since 2002, according to Dow Jones Market Data. While the move was viewed as adding to inflationary pressures, the impact of the announcement was offset to some degree by weaker-than-expected ISM manufacturing and services data.
Economic Commentary
Nonfarm payrolls added 236K jobs in March, compared to the average monthly gain of 334k over the prior 6 months. Unemployment declined 0.1% to 3.5%, while the labor force participation rate rose 0.1% for a fourth consecutive month to 62.6%, its highest level of the post-pandemic recovery. Average hourly earnings grew 0.3% from February and 4.2% from a year ago. That was down from the 4.6% annual rate recorded in February and viewed as another sign of receding inflationary pressures. Job openings fell 6.0% in February to 9.9M, the lowest level since May 2021, but still well above the pre-pandemic record high of 7.5M. February’s decline led to a notable drop in the ratio of job openings to unemployed individuals, from 1.86X to 1.67X.
Manufacturing activity as measured by industry group ISM, contracted for a fifth consecutive month in March, falling to its lowest level since May 2020. The decline, was broad-based across numerous indicators. New orders contracted for the seventh consecutive month, while falling to their second-lowest level since May 2020. Employment fell at its steepest rate since July 2020. Firms also saw inventories contract for the first time since July 2021. Service sector activity decelerated in March, falling to its second lowest level in two years. New orders sank to their lowest level of the year, while export orders plunged back into contraction territory after two consecutive months of growth. Throughout 2022, the resiliency of the services sector provided a counterbalance to growing recession concerns. March’s slowdown will put increased importance on the April data to see if March was simply a one-off, or a more sustained downshifting in economic activity; the latter of which would increase the probability of a recession occurring in 2023.
Factory orders fell 0.7% in February. The decline was led by durable goods orders, which fell 1.0%. Transportation orders fell 2.8%, largely driven by aircraft, and continued to weigh on overall durable goods orders. Excluding transportation, durable goods orders fell just 0.1%.
Of Note
Weekly jobless claims for 2023 have been higher than previously thought following a revision to the way in which the government calculates the data. The revisions suggest that labor market conditions have softened since February which would better align with a recent spate or large corporate layoff announcements.
Market Indices (As of 04/07)
| S&P 500 | -0.1% |
| Small Caps | -2.7% |
| Intl. Developed | 0.4% |
| Intl. Emerging | -0.3% |
| Commodities | 0.8% |
| U.S. Bond Market | 1.1% |
| 10-Year Treas. Yield | 3.41% |
| U.S. Dollar | -0.4% |
| WTI Oil ($/bl) | $80 |
| Gold ($/oz) | $2,024 |
The Week Ahead
- Consumer Inflation (CPI)
- Producer Inflation (PPI)
- Retail Sales
- Industrial Production
- Consumer Sentiment
- Weekly Jobless Claims
