The CPI index likely ran hot in February on higher gasoline prices, but core inflation likely slowed further as car prices fell and rent increases moderated. Producer prices likely rose less than retail prices in the month, but were nevertheless higher as more expensive diesel caused transportation and warehousing costs to jump after three monthly declines.
The Treasury Department’s monthly deficit likely widened in February, as it typically does in that month. The Department of Education’s cancellation of $1.2 billion in student loans in February likely added to the monthly deficit, though its incremental effect on monthly borrowing will be smaller since its cash flow effect will be spread out over the life of the cancelled loans.
Retail sales likely rebounded sharply as Americans spent more at gas stations, bought more new vehicles, and increased discretionary spending on durable goods after bad weather held back spending in January. Industrial production was likely flat, with milder weather helping mining but hurting utilities.
No new insights about the future path of monetary policy were gleaned from Chair Powell’s much-awaited semi-annual testimony to Congress, where he reiterated: Interest rates are likely at their peak for the current tightening cycle; rate cuts are likely appropriate sometime this year; and monetary policymakers will need to have greater confidence that inflation is returning sustainably towards the 2% target before easing policy, but they are “not far” from having that confidence.
275,000 nonfarm payroll jobs were added in January, well above the 190,000 consensus. That good news was partially offset by a substantial 167,000 downward revision to the prior two months’ job growth. The unemployment rate unexpectedly rose by 0.2 percentage points to 3.9%, as layoffs rose by 174,000 to a 27-month high of 1.730 million. The labor force participation rate held steady at 62.5% for the third consecutive month, 0.3 pp below the pandemic-era high of 62.8%. The decline was concentrated among men aged 16-19 years and over 55 years. The average workweek rose by 0.1 hour to 34.3 hours, partially recovering from the weather-related 0.2-hour decline in January. Following a strong increase in January, wages rose by a modest 0.1% last month and were up 4.3% from a year earlier.
Job openings were essentially unchanged at 8.9 million in January, with December revised lower. While the imbalance in the labor market has come down sharply from two years ago, demand for labor still exceeds supply, with 1.4 vacancies for every unemployed person. Quits, voluntary separations initiated by employees, and the quits rate—widely-watched measures of labor market mobility—continue to fall and were below pre-pandemic levels, indicating decreasing willingness of employees to change employers. Since job changers tend to see faster wage growth than job stayers, a lower quits rate will contribute to slower wage growth over time.
Bill Adams is a senior vice president and chief economist at Comerica. Waran Bhahirethan is a vice president and senior economist at Comerica.
