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Q1 Ending with Markets Slightly Mixed

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Thursday, March 31, 2022

On this last day of March — and the final day of calendar Q1 — we’ve got mildly mixed pre-market indexes, with the Dow and S&P 500 down slightly at this hour and the Nasdaq slightly up. At these levels, we’ll be celebrating our first month in the green of 2022: after two disappointing months tethered to the Omicron variant of Covid, inflation/interest rate fears and Russia’s war of aggression in Ukraine.

Thursday mornings typically bring us new weekly Jobless Claims, and this Thursday is no exception: 202K on Initial Claims is +14K from the slightly upward revised 188K last week and the 195K analysts were expecting, but are still consistent with a healthy labor force. In fact, last week’s 187K had not been touched since 1969, when our economy was much, much different.

Continuing Claims, on the other hand, took out those 52+ year lows, reaching 1.307 million for longer-term jobless claims. These numbers are reported a week in arrears from initial claims, so it makes sense that these new lows would have been reached. We might also expect a slight uptick next week, as initial claims are a forward indicator. Still: a quite excellent place to be on the jobs front.

These figures are sandwiched between yesterday’s private-sector payroll numbers from ADP (ADP - Free Report) and tomorrow’s nonfarm payroll report from the U.S. government. The ADP numbers were likewise strong and consistent with the rosy labor numbers elsewhere, and tomorrow another 490K new jobs are expected. It’s looking possible, from this vista, that the U.S. may be able to “work” its way through our current inflation issues.

Speaking of inflation, Personal Consumption Expenditures (PCE) data for February is also out this morning, with a headline +0.5% coming in-line with estimates. Consumer spending, on the other hand, was notably slower than expectations: +0.2% versus the +0.5% analysts were looking for. Inflation would be a likely source of consumers keeping their pocketbooks zipped, at least for the month of February.

Real Personal Spending really took a dip: -0.4% from the +2.1% posted in January, which again speaks to a tightening of the purse strings. Keep in mind these numbers are all weeks prior to the Fed raising interest rates, which is designed to curb inflation. It would appear, at least from this one month’s set of data, that the consumer has gotten a head start on the Fed.

The most important figures to come out of this report — in terms of where the Fed and other economists are looking — is the Deflator, which, simply put, is a direct month-over-month comparison of PCE data. Here we see a different narrative: +0.6% is the highest monthly jump we’ve seen in 14 years, +0.4% on core. Year over year is where we see the real historic numbers, however: both headline deflator at +6.4% and core (ex-food & energy) deflator at +5.4% are the highest prints we’ve seen in almost 40 years.

It’s a lot to digest, but it should get our weather vanes in line. With tomorrow’s job numbers — along with ISM Manufacturing and Construction data — and Q1 earnings hitting the tape in the coming weeks, we’ll be able to erase plenty of question marks regarding our economy — for better or worse.

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