Economic Updates for April 2023


Running on fumes - how long can we go before we hit recession?

It has been quite a month! FED very successfully dodged the banking crisis and got away with raising rates one more time. The market thinks they are likely to raise once again in May.

The short end rates have breached above 5% since our last update and is still rising. The earnings season for Q1 2023 is in progress and while earnings expectations have been tempered, most companies so far seem to be able to meet or beat those reduced expectations.

However, none of these indicate continued growth in the coming months / years. In spite of Atlanta FED GDP nowcast projecting 2+% growth for Q1 2023, the market participants are getting more certain of a hard landing where they see a recession ahead - in Q3 2023 or latest by Q2 2024. Their conviction is based on the fall in commercial and industrial loans since the SVB banking crisis. The elevated interest rate takes time to evidence its effects. It is just a matter of time when credit becomes tight enough to slowdown growth and push unemployment rates higher. FED, in fact, is projecting that unemployment will rise by about a percentage point by the end of the year. So, we are running on fumes, and it is just a matter of time before the economy enters a recession.

What if we are wrong and FED is successful in managing a soft or no landing - no recession and the economy continues to make progress? If so, we expect to see the GDP factors to improve and price to earnings ratio of equities to rise. While there is some evidence for both, we are still skeptical.

Broad Indicators

Money Market Funds Growth

The story of this month in one chart is the Money Market Funds growth. It has added around half a trillion of inflows from regional banks as depositors have moved their money from bank savings to the money market. The previous such big move happened during the corona virus crisis in March 2020.

Atlanta GDP NowCast

GDP is currently projected to be 2+% for Q1 2023. Even the blue chip consensus forecast have climbed higher not withstanding the deposit crisis in banking. Our guess is that the deposit crisis is yet to work through the economic engine and impact GDP growth rates.

US Dollar Index

The dollar has softened over the past month. While China has been making bilateral deals with many contries to avoid dollar based trades, it is yet to be seen if the softening is an effect of such activities.


The easing in commodity prices continue from last couple of months. Increase in yields over the past month as well as the uncertain demand in the future as the economy slows both dampen the spirits in energy prices. For the first time in a while, we are seeing energy is contributing to bringing inflation down!


Gold and Bitcoin have continued their climb. The rise is in spite of a resumption in the rise of short term interest rates and softening inflation data. The market may be acknowledging the potential of a slowing dollar.


Gold and Bitcoin have continued their climb. The rise is in spite of a resumption in the rise of short term interest rates and softening inflation data. The market may be acknowledging the potential of a slowing dollar.


CPI Month over Month

In the month of March, inflation climbed by 0.3%. This has been in line with consensus expectations.

PPI Month over Month

PPI, however, has remained muted with a 0.1% fall in March. This certainly moved the markets on the day when the report came out.

NYFed Global Supply Chain Pressure Index

If you believe the rise in inflation was transitory, here is a comforting chart. Many believe the cause of inflation was due to supply side constraints caused by COVID shutdowns across the world. This chart tracks the pressure on global supply chain. Clearly, according to this data, the pressures have been coming down and is now 1
see wikipediastandard deviation
below the normal pressure.

This chart has continued its trajectory downward.

Reported Year over Year Inflation Rate

This is the headline inflation number that everyone talks about. Currently, for March 2023 we are at 5.0%, a full percentage point below the previous month's number! Although, inflation is known to be sticky, the current trajectory is definitely very promising.

CPI Components

CPI Components Last Month
CPI Components This Month
All components of inflation are seen moderating. As mentioned earlier, energy's contribution to inflation is negative in a long while! (Please note that the y-axis in both the graphs have different scales).

One Year Inflation Expectations

This survey data shows that inflation one year from now is expected to be 4.6%, a reversal from the trend downwards. Not sure what the survey participants are envisioning, perhaps a hot jobs market remaining hot for a long time.

5 Year, 5 Year forward Inflation Expectations

This is a market based indicator showing the inflation in 5 year forward interest rate, 5 years, is in a 2
handleIf a measure such as stock price ranges in 35.01 through 35.99, the stock price is said to have a handle of 35.
. This indicates the current inflation bout is just a blip in the radar and not an indicative of a structural change in the economy.

10 Year breakeven Inflation Expectations

This is another market based indicator showing the inflation 10 years from now is in a 2
handleIf a measure such as stock price ranges in 35.01 through 35.99, the stock price is said to have a handle of 35.
. This indicates the current inflation bout is just a blip in the radar and not an indicative of a structural change in the economy.

Real Yield - 10 year Treasuries

It is great to see real yields in the positive territory after a long period of being on the negative side. This indicates the optimism in bonds where you can make some positive
carryYield on the investment.
. It has bounced back after the decline following the banking crisis confirming the resistance around 1%.


Consumer Sentiments

The survey indicator for consumer sentiments remains just fine. It is good to see it has not declined considerably after the January effect last month.

Investor Sentiments

The investors have remained bearish for a while. With the earnings season, we are likely to see more volatility in equities in the coming weeks. It will be interesting to see if investors get further pessimistic as the earnings season progresses into May (upholding the cliche 'Sell in May and go away').

GDP Factors

Manufacturing PMI

Manufacturing PMI reading bounced a bit from last month but still below 50 indicates a contraction which is not great and does not share the Atlanta FED optimism on GDP growth. More so, this may indicate the slowdown in the economy that is yet to come. However, in the last few months, we are seeing a bump to the positive side and we hope it continues to build up to above 50.

Services PMI

Services PMI reading has pushed past 50 and continues the trend from last month1 Many are jumping to the conclusion that this may indicate a soft or no landing scenario, essentially implying that we may avoid a recession.

Industrial Production

Industrial Production remains close to zero.

Retail Sales

Retail Sales has remained negative in the last two months in a row. Perhaps the holiday sales lacuna is a reason, perhaps consumers are seeing the pinch from continued inflation.

Non-farm Payrolls

Non-farm payrolls have stubbornly been too good indicating economy is still adding jobs. This month the jobs number was inline with expectation but too high to indicate any slowdown in job growth. This just makes FED's job so much harder.

Total Vehicle Sales

Total Vehicle sales continues to be within its trend band higher.

Manheim Used Car Index

The used car prices are starting to inch up again seemingly the demand is coming back up. It may also be indicating a slowdown in inflation ahead.

US New Home Sales

New home sales are starting to tick up again. Perhaps new buyers are feeling courageous to take on the higher mortgage rates thinking it may only go higher in the coming months.

30 Year Fixed Mortgage Rates

The mortgage rates are stabilizing and buyers have been coming back to the market. The housing market is showing signs of thawing as spring has arrived.

Employment Indicators

Historical Unemployment Rate

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 in the months to come.

Unemployed to Job Openings Ratio

There are about 2 job openings for every unemployed person looking for a job.

US Jobless Claims

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.
Source Continuing Jobless Claims

Indeed Job Postings

Interestingly, the rate of change in job postings is reducing but the total jobs are still rising according to this indicator. While this is consistent with the BLS report on job openings to unemployed, we expect to see some sharp corrections if a recession is imminent.

Wage Growth Tracker

This month, the wage inflation is exceeding the headline inflation as it recorded a reading of 6.4% compared to the headline inflation of 5%. This is an indication that inflation is being entrenched 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.

Market Indicators

Yield Curve Inversion

The excitement last month on the inversion in the yield curve reverting did not last long. The short and long term yields continue to rise as we expect FED to continue to raise rates in their next meeting in May.

Yield Curve - then and now

Yield curve - Then
Yield curve - Now
No joy here as yet. Last month, there was some excitement around the inversion in yield curve correcting, but it turned out to be short lived. FED seems to have successfully contained the banking crisis. Now, the rates are starting to push higher again.

Market Sectors

Year to date, technology and communication sectors and back to being the leaders. Is this a dash for trash, long duration trade back on again? Or is this for real this time? The developments in the banking sector foretells this move is short-lived.

High Yield Index Options-Adjusted Spread

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.
Since the SVB banking crisis, the credit spread has been contracting! This indicates a credit crunch is not imminent.

Put Call Ratio

A spike in put / call ratio indicates that investors are very apprehensive about a sudden fall in the equity markets. In March, the activity has been quite well behaved in the overall market (SPY) in spite of the turmoil in the banking sector.

S&P 500 Current Valuations

The current earnings forecast by equity analysts estimate the earnings potential for S&P 500 companies to be around $230 which translates to a price to earnings ratio of 17.1 at the current S&P 500 price level. This is just below the 10 year average.
It is likely that as inflation comes down, so will the earnings numbers. This indicates that the future S&P 500 price level could likely come down. Based on the companies that have reported so far, the earnings have declined by -6.5%.


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