by Franklin J. Parker, CFA
The Summary
Inflation figures were the talk of the town last week. Headline inflation posting slightly higher than expected, but producer prices posted much higher than expected. This puts all eyes squarly on the Federal Reserve meeting this week, with investors hungry for guidance on the timing and path of interest rates this year. The expectation remains for rate cuts to begin in June, with about three total cuts for the year. Any commentary from the Fed that indicates less than that would likely be taken quite negatively by markets.
Retail sales were also disappointing last week. With the unemployment rate creeping up, I am re-emphasizing my (now long-held view) that there are some serious strucutral difficulties in the economy that need to be overcome. Seeing companies push profits higher would help me update this view (the majority of companies have not done this in over a year) . Or, if we see any of the other recessionary signals we have discussed here move in the other direction, my confidence in the path of the economy would grow. In sum, I am recommending caution — exactly what that means for you depends on your personal objectives.
Chart of the Week
The US Consumer has, for the most part, kept the US economy going. With manufacturing in contraction, services barely breaking even, and companies struggling to make profits, the consumer is the one bright spot. Retail sales, however, have been trending steadily down, to now at barely break-even. A contraction in retail sales would be an added concern for the health of the economy.
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