March Empire State Manufacturing Index fails to meet expectations

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Published Date 3/15/2024

Inflation just won’t cooperate, continuing to increase. This week CPI and yesterday PPI both a little higher than forecasts sent rates higher, the 10 increased 11 bps yesterday, and MBS prices fell 42 bps. The unexpected increase in inflation so far has not caused traders to abandon three rate cuts from the Fed this year, although the timing is being questioned. Last week when Powell testified at Congress, he was on the positive side saying the Fed has made progress bringing down inflation, but he wanted more evidence inflation was on a path lower, this week he didn’t get it.

At the FOMC meeting next week the Fed will issue its quarterly update on inflation, employment, and GDP growth; the last update was at the December FOMC meeting. Bloomberg surveyed 49 economists, the survey showed economists increased 2024 GDP growth from 1.4% to 11.7% and inflation at 2.5% up from 2.4% in the previous survey. The survey conducted between March 8 and March 13 that includes Tuesday’s CPI data but not the PPI data of yesterday. CPI the last two months showed inflation hasn’t lessened. Beside inflation, the FOMC is expected to announce a slower pace of tightening of its $7.5 trillion balance sheet, so far the reduction in its balance sheet has come from letting maturing debt run off, not actually selling the debt. The expectations are that the Fed will slow down its quantitative easing.

Recession or not? Last summer 58% of economists surveyed were expecting a recession this year; the recent survey shows just 17% now believe a recession this year. The Fed is believing it has avoided a potential recession according comments recently from Powell and other Fed officials recently.

Data this morning; the March Empire State manufacturing index, expected -8.0 dropped -20.9. February import prices +0.3% against forecasts of +0.2%, year/year -0.8% with estimates at -0.7%; export prices +0.8% with estimates at +0.1%, year/year -1.8% from –2.2% in January. February industrial production month/month expected 0.0% increased 0.1%, the first time production has not been negative for more than a year. Capacity utilization at 78.3% unchanged from January but was expected 78.4%.

At 9:30 am the DJIA opened -18, NASDAQ -108, S&P -26. 10 year note 4.31% +1 bp. FNMA 6.0 30 year coupon at 9:30 am -9 bps from yesterday’s close and -30 bp from 9:30 am yesterday.

At 10 am University of Michigan mid-month consumer sentiment index estimates were 76.3 from 76.9 in February.

Next week the FOMC meeting on Wednesday.

Source: TBWS

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