MACRO FLASH REPORT

Last week, non-farm payrolls came in well below expectations (175k vs, 240k) after months of higher-than-expected prints. This calmed the nerves of observers who were starting to think that the labor market and inflation were starting to reaccelerate and could soon warrant interest rate hikes. Looking more broadly, the labor market has been cooling slowly since early 2022 – going forward, this trend will need to continue for a soft-landing or no-landing scenario to materialize.

The broader economy showed additional signs of cooling from last year’s breakneck pace and the FOMC held rates steady.

Imports remain elevated (next week will give us the first look at May), as we move out of spring maintenance season with domestic production at its lowest level since late January. Domestic spot prices are clearly losing their upward momentum and will likely test their previously held floor of $800 with global prices starting to trickle higher.

While the FOMC is leaving rates unchanged at 5.25-5.5%, today’s statement is signals that the FED is taking a longer view on inflation trends while acknowledging that the recent data is coming in hotter than they initial anticipated. Leading up to the statement and press conference, the market was anticipating a hawkish turn (i.e., less rate cuts, also starting later) and that is exactly what was delivered. We still maintain the belief that July will be the first cut, but also believe that will be the only cut in 2024.

Overall, the April FED Manufacturing surveys point to continued contraction in the manufacturing sector, although the fundamentals are improving. The ISM Manufacturing PMI surprised to the upside in March, but April is currently expected to print down from 50.3 to 50 (still technically expanding). While there are underlying signs of improvement, we expect the manufacturing sector to tread water over the next 3 months. Therefore, a brief return to contraction territory in April would not be surprising.

Most importantly, inflation data continues to come in above expectations, while the industrial side of the economy remains on a road to recovery.