A Promising Start to 2023
Predictions can make fools of us all, and while it’s way too early to argue that Blackrock’s declaration of an inevitable recession is wrong, recent US unemployment data suggests that a soft economic landing may yet be in the cards.
The continued strength of the labor market has been a surprise. Payrolls increased in December by 223,000, and unemployment declined from 3.7% to 3.5%, which ties the lowest mark since 1969. We would have expected a tight labor market to result in high wage growth that could then yield high inflation, but wage growth in December was mild at 0.3%, against expectations of 0.4% to 0.5%.
Significant data revisions have been common in recent months, so all economic reports should be taken with a grain of salt, but by initial reports the US hit the trifecta last month with strong job growth, low unemployment, and low wage growth. The Atlanta Fed’s Q4 2022 real GDP growth estimate of 3.8% also suggests that the US economy is currently nowhere near recession territory.
Inflation is still too high, and market expectations are for the Fed to continue raising rates, albeit by only 25bp in February, and then to leave them elevated throughout 2023. But so far this year the 10-year Treasury rate has declined 24bp, the 30-year rate has fallen 21bp, while the S&P 500 is up nearly 3%. Circumstances can change quickly, but after a challenging 2022, the new year has started off for markets and the economy about as well as could be hoped for.
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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.