A look forward at the March 9 week has a thin economic data calendar. Most of the indicators will be related to inflation and/or confidence. In particular, the numbers for consumer and business confidence will be current enough to capture the mood associated with the spread of COVID-19 and its increasing presence nearer to home.
Note: daylight saving time goes into effect on Sunday, March 8 in the US.
Note: the BLS intention to release its economic data reports via the internet is set to begin this week and will get its first real test on Wednesday with the Consumer Price Index numbers.
In the meantime, the communications blackout period around the March 17-18 FOMC meeting will go into effect at midnight on Saturday March 7 and run through midnight on Thursday, March 19. Whatever message Fed officials wanted to deliver prior to the meeting will not get an update next week. The only possible break in the silence could be from Chair Jerome Powell if a change in circumstances warrants it. While news about the coronavirus has equity markets heading lower and investors grabbing for safe assets, the actual impact on the US economy has so far been limited. That doesn’t mean that Powell will not decide to issue another statement reassuring that the Fed stands ready to act if needed, or even that the FOMC will not determine on another rate cut to add to the 50 basis point cut on March 3. However, Powell has also indicated that it will need effort on the part of fiscal authorities to address any downturn and that the Fed cannot solely shoulder the burden of restoring calm.
The NFIB Small Business Optimism Index for February at 6:00 ET on Tuesday could retrace the 1.6 point gain to 104.3 in January, and maybe more than that. While the NFIB jobs data released on March 5 showed that small businesses still have plentiful job openings and plans to hire, the full data set may show less positive views for the economy and sales, and reluctance to expand at a time when uncertainty is even more elevated. Unless the headline dips below the 100-mark, this should be read as consistent with increased caution, not deterioration.
The preliminary University of Michigan Consumer Sentiment Index for March at 10:00 ET on Friday could also unwind its 1.2 point rise to 101.0 in February when it was the second highest in the post-recession period. It won’t have changed that consumers’ optimism is buoyed by the strong labor market in the present, but worries about the near term future may have begun to emerge along with reports that COVID-19 has arrived in the US and is starting be more than a few isolated cases. Nonetheless, consumers are also going to find a few positives in the drop in interest rates which will make homebuying yet more attractive and the dip in household energy costs which will improve discretionary incomes. In any case, even a steep fall in confidence is unlikely to bring the index down to levels associated with crisis and recession.
Consumer inflation expectations as of early March are likely to continue at or near recent lows in the University of Michigan Survey of Consumers. These tend to follow gasoline prices closely and gas prices have been trending down a bit. The Atlanta Fed’s Business Inflation Expectations for March at 10:00 ET on Wednesday is harder to guess. Energy prices will help keep price pressures down and inking of Phase One of the China and USMCA trade deals could help reduce some tariffs. However, the supply chain disruptions associated with COVID-19 mean that some goods are in limited supply and prices are going up, and more are expected to face delays and shortages in the near term. That may mean businesses’ costs are on the rise as well, although they are likely to try to avoid passing on increases if they can.
The February Consumer Price Index is set for release at 8:30 ET on Wednesday, the Final Demand Producer Price Index is at 8:30 ET on Thursday, and the Import Price Index is at 8:30 ET on Friday. All of these will see declines in energy-related components. Crude oil prices had a significant decline in February from January. Food prices may be down as well since mild weather could mean that some spring crops are coming to market early. However, prices excluding food and energy – which tends to be what the FOMC focuses on in its deliberations – are probably going to be on trend for increases. In particular, the year-over-year CPI should be within reach of the Fed’s 2% symmetric target and not provide a reason for another rate cut after the March 3 action.
If the FOMC does determine on another cut at the March 17-18 meeting, it probably won’t be because of signs of substantive deterioration in the labor market or worries that inflation and inflation expectations are too low. It will be because of clouds on the economic horizon that counsel a little more insurance is needed to keep growth intact in the record expansion.
Disclaimer: Whetstone Analysis provides commentary as a service to its subscribers. Whetstone Analysis is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained within the site. While the information contained within the site is periodically updated and every effort is made to ensure its accuracy, no guarantee is given that the information provided in this Web site is correct, complete, and up-to-date. Click here to read our full Disclaimer.