We at Brix Partners believe that it is important that you are well-informed about what is happening in the markets. Here are a few of the key topics of conversation that deserve the most attention this month. If you have any questions or would like to continue the conversation, please reach out.
Inflation remains in the headlines, though the data was not as bad as the headlines sounded. In January, consumer prices rose more than expected, with CPI increasing by 0.5% and core CPI by 0.4%1. Despite worried headlines about the sharper than expected rise, the “January effect” of regular seasonal adjustments had a significant impact, making the rise appear sharper than the fundamentals may suggest. Also, revisions to past reports show the second half of 2024 had stronger disinflationary trends. The February inflation report will be critical to assessing any new trends or concerns since extrapolating from January’s report can lead investors astray.
Trade policy continues to be a volatile aspect of today’s market and economic environment. It is still unclear what the status quo may look like in a few weeks, let alone a few months from now. Recently announced tariffs on steel and aluminum may roil allies along with the threatened tariffs on the EU and the recently delayed tariffs on Mexico and China. Estimates vary, but if the previously announced tariffs on Canada, China, and Mexico were to be enacted and sustained, it could modestly pull-down US GDP growth rates and job numbers while amplifying inflation. The latest inflation report came in above expectations (though with some important caveats), which could put additional pressure on the Federal Reserve to maintain elevated interest rates for a longer period.
The consumer is always one to watch, but especially so after the latest retail sales report. The report showed in January that consumers pulled back, with retail sales falling 0.9%2, well below expectations. However, this happened after a solid holiday season and likely some advance-buying ahead of looming tariffs. Cold weather may have also played a role, so it may be too early to place a significant amount of weight on the report, but rather another item for investors to keep an eye on. On the jobs front, January saw 143K jobs being added across the economy, a bit lower than expected, though revisions to the previous two months added another 100K jobs3. The unemployment rate fell to 4.0%, and earnings rose 0.48%, exceeding forecasts. Despite January’s slower job growth, the six-month average rose to 178K, the highest since May. Strikes and weather may have contributed to the weaker report as well, so the upcoming reports will be important to determine which direction the jobs market is moving.
The bottom line: The latest economic reports continue to suggest the Federal Reserve is likely to keep rates steady for now and hold off on any further cuts. Over the last few weeks, various reports have been both better- and worse-than-expected, but revisions to their old data have helped dampen the insight or takeaways that the headlines may suggest. Consumer sentiment continues to be rife with political sentiment (in both directions)4 and the consumer’s resilience to multiple slowdown narratives has remained strong in recent times. Recent shakeups in the technology and AI space, along with trade policy, continue to pose risks to investor sentiment and the overall economic outlook.
Sources:
- Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
- Census Bureau, https://www.census.gov/retail/sales.html
- Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
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