The still-elevated level of inflation in annual change and its increasing momentum have continued to adversely affect morale in US households. In April, consumer confidence, as measured by the Conference Board, fell for the third month in a row (97.0, -6.1 pp), ultimately cancelling out the progress seen at the end of 2023. Similarly, the University of Michigan survey reported a drop in its Index of Consumer Sentiment in May, with a score of 69.1 (-10.5), the lowest since November.
Inflation, measured by the CPI, eased slightly in April, with a monthly change (SA) of +0.3% m/m (-0.1 pp). This result brought an end to four months of acceleration and contributed to a decrease in the y/y rate to +3.4% (-0.1 pp), offering a beginning of respite after a series of negative surprises in Q1. Core inflation also eased to +3.6% y/y (-0.2 pp).
The nonfarm payroll increase fell to +175k in April, after a particularly dynamic March (+315k). Government jobs accounted for nearly half of the drop (-64k). At the same time, the unemployment rate kept following a slow upward trend (3.9%, -0.1 pp) while the wage growth rate was at its lowest for nearly three years, standing at +3.9% y/y. The March JOLTS survey, which showed a major downturn in vacancies and hiring, adds to the picture of a labour market that is still relatively dynamic, yet is also rebalancing.
The ISM surveys in April reversed expectations. The manufacturing index stood at 49.2 (-1.1 pp), returning to contraction territory, whereas March had seen the first expansion since September 2022. In addition, the sharp slowdown in the Business Activity sub-component (50.9, -6.5 pp) resulted in a contractionary result (the first seen since December 2022) for the ISM non-manufacturing index (49.4, -2.0 pp). Nevertheless, while Q1 2024 delivered a downward surprise with a quarterly rise of +0.4% q/q dragged down by negative contributions from foreign trade and stocks, the growth rate is expected to increase to +0.8% q/q according to our forecasts, while the Atlanta Fed’s GDPNow is even more bullish (+0.9%).
The Federal Reserve decided to keep its interest rate target at 5.25% - 5.50% at the monetary policy meeting on 30 April - 1 May. The late upturn in inflation, illustrated by a +4.3% momentum (3m/3m annualized) in core inflation in April, led to expected rate cuts being unanimously postponed. As a result, while Jerome Powell mentioned the lack of progress and a need to keep monetary policy at a restrained level level, we expect a single rate cut (-25 bps) in 2024, which should happen in December.
Article completed on 27 May 2024
