US economic activity slowed slightly in February, according to the ISM survey. It reported a deterioration in the business climate in the manufacturing sector, putting a halt to three months of increases, with the associated index standing at 47.8 (-1.3pp). In addition, the decline is almost across the board within the main sub-components, including new orders, which are returning to the contraction zone (49.2, -3.3pp) after emerging from it for the first time since August 2022 in January. The ISM non-manufacturing index also reported a smaller decrease, to 52.6 from 53.4 previously, due to declining hires and faster deliveries, the latter suggesting that suppliers are better able to meet demand. These results are in line with our estimate of a slowdown in growth in GDP in the first quarter of 2024, to +0.7% q/q compared to +1.4% in Q4 2023, slightly above the Atlanta Fed’s GDPnow (+0.6% q/q).
Conversely, February was marked by modest improvements in industrial production and retail sales, which started the year with a monthly decline. In fact, the industrial production index rose by +0.1% m/m (+0.6pp). And the retail sales control group (which excludes motor vehicles and parts and gasoline stations), an advanced indicator of household consumption in GDP, gained +0.3% m/m (+1.1pp).
On the employment front, nonfarm payrolls surprised to the upside in February, rising to +275k, although this result was largely tempered by significant downward revisions over the previous two months (including -120k to January’s initial figure). At the same time, the unemployment rate reached 3.9%, its highest since January 2022.
Inflation figures were disappointing in February. Measured by the consumer price index (CPI), it accelerated both month-on-month (+0.4% m/m, +0.1pp) and year-on-year (+3.2%, +0.1pp). While core inflation fell to +3.8% y/y (-0.1pp), it continued to be characterised by the high level of its services-related components (+5.8% y/y for housing services, +4.6% excluding housing).
The second monetary policy meeting in 2024 concluded, as expected, with a steady interest rate target at 5.25 – 5.5%, which was reached last July. The interest rate decision was accompanied by the publication of the committee members’ median economic projections. The latter maintained their expectations of an interest rate target of 4.5 – 4.75% at the end of 2024, i.e., three 25-bp cuts, despite upward revisions to the underlying PCE inflation (2.6%, +0.2pp) and growth rate (2.1%, +0.7pp) of 2024 since the Q4 2023 forecasts.
Article completed on 28/03/2024
