Economic Updates for January 2024

Most of 2023, Atlanta FED GDP Nowcast projected a higher number compared to the Blue Chip consensus and the Blue Chip consensus was playing catchup. This year, for Q4 2023 Nowcast, both seem to be inline around 2% growth.

The LEI after giving a recession signal for almost a year is now firmly reverting back! The LEI's reading may be misleading in the post COVID era. Tom Lee of Fundstrats opines that LEIs may be signaling a recession incorrectly because we are fighting an inflation cycle and not a business cycle.

The Dollar has followed the recent drop in 10 year yields.

Energy prices are still moderating in spite of the tensions continuing in the middle east.

The divergence in Gold and Bitcoin is continuing this month! The spot ETFs on Bitcoin are now approved and we are seeing some sell the news effect in BitCoin.

Same comment as above in Gold.

The CPI reading for the month of December 2023 came at -0.1%. This is a very encouraging reading, improving the odds that inflation is firmly being contained.

PPI is projected to be -0.1% in December 2023.

This is the headline inflation number that everyone talks about. For December 2023 we are at 3.4% bouncing up somewhat from a lower number in November. We are still in the right neighborhood. In the coming months, we hope the inflation remains contained. Historically, inflation is known to bounce back a few times before it finally subsides. The FED has also signalled their pivot from a hawkish stance acknowledging the inflation is most likely contained for good.

CPI Components Last Month Source BLS.gov Consumer Price Index

CPI Components This Month
Energy prices have stayed down this month again but not as pronounced as last month. (Please note that the y-axis in both the graphs have different scales).

This survey data shows that inflation one year from now is expected to be 3.1%. It has significantly come down from the estimate last month. This adds to the confidence perceived in the financial markets that inflation will remain tame.

University of Michigan's consumer sentiment surged to 69.7 this month in sharpe contrast to the last few months. The renewed optimism is perhaps reflecting the drop in inflation and inflation expectation.

The AAII sentiment has remained very bullish even into the year as the S&P 500 has been consolidating after a frantic melt up in December following the FED dovish pivot.

This month has witnessed some drop in the Manufacturing PMI. It is now at 48 indicating shrinking in manufacturing activities.

In contrast to the Manufacturing PMI, the Services PMI reading has been steadily above 50 over the last few months and the activity appears to be gradually increasing.

Industrial Production has slowed this month with a reading of -0.3935%.

Retail Sales have picked back up into the positive territory this month. Perhaps the early beginning to the holiday season explains part of this increase.

Non-farm payrolls have stubbornly been too good indicating economy is still adding jobs. This month the jobs number came in above expectation.

Total Vehicle sales continues to be within its trend band higher, which is a good sign.

Used car prices seem to be reverting down this month. This has been a tail wind for core inflation in its downward trend.

New home sales were lower than the previous month, but with no definite trend to talk about.

The mortgage rates have followed the 10-year Treasury yield higher over the last few months. Recently as the inflation is contained and 10-year Treasury yield has rolled over, the mortgage rates has come down a tad bit.

The unemployment rate has remained low despite the FED's attempt to induce a slowdown. This indicator is a lagging indicator and we do expect to see this number creep up if recession becomes imminent.

This chart will be the first indicator of a telltale sign that unemployment is increasing. As you see the continuing jobless claims number rise, it implies the people who lost their jobs are not going back to labor force fast enough and the unemployment rate is starting to creep higher. Over the last couple of weeks, it has trended lower, indicating a strong job market. It could turn out to be seasonal and it needs to be watched over the next few months if the continuing claims build up.

This month again, the wage inflation continues to exceed the headline inflation as it recorded a reading of 5.2% compared to the headline inflation of 3.4%. This is an indication that inflation is being entrenched in the labor market and may lead to wage/price spiral. Something that the FED does not want to see and makes it likely to keep rates higher for longer.

The yield curve has been flattening over the last month and is reading -0.18% or 18 basis points from being fully flat.

Yield curve - Then

Yield curve - Now
While the long end is more or less where it is, notice how the 2 year part of the curve is coming down.

Year to date, healthcare, staples and communications sectors have been the out performing the rest of the sectors.

If the economy were to enter a recession, it is likely that some of the companies will struggle to keep up with their debt payments causing their credit spread to widen. This indicator shows how the credit spreads have been behaving so far.

The tight spread indicate that the soft landing narrative is actually playing out.

A spike in put / call ratio indicates that investors are very apprehensive about a sudden fall in the equity markets. In December/January, we have seen some interesting activities but nothing out of the ordinary.

The current earnings forecast by equity analysts estimate the earnings potential for S&P 500 companies to be around $245 which translates to a price to earnings ratio of 19.5 at the current S&P 500 price level. This is above the 5 year and the 10 year averages.

• Trillium Square Advisors LLC is a registered investment adviser offering advisory services in the state of North Carolina and in other jurisdictions where exempted. Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Security and Exchange Commission or by any state securities authority.
• Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments or investment strategies. Market data, articles and other content in this presentation are based on generally available information and are believed to be reliable. Trillium Square does not guarantee the accuracy of the information contained in this presentation. The information is of a general nature and should not be construed as investment advice and relied upon in making investment decisions.
• Investments involve risk and are never guaranteed. Be sure to first consult with a qualified financial adviser before implementing any strategies discussed herein.
• Past performance is not indicative of future performance.

• The content of this communication and any accompanying documents are not to be copied, excerpted or distributed without express written permission of the firm. Any other use beyond its author’s intent, distribution or copying of the contents of this presentation is strictly prohibited. Nothing in this document is intended to be legal, accounting, or tax advise, and is for informational purposes only.
• Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular investment strategy. Hypothetical performance for illustration purposes only.
• Trillium Square will provide all prospective clients with a copy of our current Form ADV, Part 2A (Disclosure Brochure) upon request. At anytime you can view our current Form ADV, Part 2A at https://adviserinfo.sec.gov