Analysis: The First Data Since The Banking Crisis Erupted In March
The first data since the banking crisis erupted in March were just released, and as expected, showed the economy slowed, leaving the U.S. teetering on the edge of a recession.
All eyes are on the response by the Federal Reserve on May 3, when central bankers will decide whether to hike rates one more time in their yearlong battle against inflation. Here are the latest statistics affecting investors.
Although the March data showed clear signs of a slowing, key economic fundamentals make a recession in 2023 unlikely: Job openings outnumbered unemployed workers seeking jobs by nearly two-to-one and the rate of participation in the workforce ticked higher.
While the economy may not shrink for two consecutive quarters in 2023 and meet the textbook definition of a recession, fractional economic growth in the U.S. should be expected as the Federal Reserve attempts to reduce inflation to its target of 2% without causing a recession.
A slowing in U.S. growth was indicated in March by the significant drop in the index based on a month survey of purchasing managers in the service sector, which accounts for 89% of gross domestic product and 91% of new-job creation.
The Institute for Supply Management, which conducts the survey monthly, designed this index to indicate the economy is growing when it’s at 50.1% or more. A reading of 50% or less indicates a contraction is under way. At 51.2%, the service economy shrunk in March from February’s reading of 55.1%.
But the U.S. created 236,000 net new jobs in March, which is higher than the rate of job creation during the 11-year expansion that preceded the pandemic. When the number of new employees being hired is rising, the new income and spending spurs a virtuous cycle of growth.
Meanwhile, the labor participation rate climbed sharply in March, continuing a positive trend. A reduction in immigration simultaneous with a surge in retirements during the pandemic unexpectedly reduced the labor participation rate. America’s labor force shrunk. The labor force is the percent of the U.S. civilian population age 16 and older that is employed or actively seeking work. The recovery in labor force participation post-pandemic has been slow but is now approaching pre-pandemic levels. With more Americans returning to labor force, total income and spending in the U.S. has climbed slowly and haltingly but is a positive fundamental economic trend to track in the second quarter.
The current bear market that began in mid-June is nearly 10-months old, as measured by the Standard & Poor's 500 stock index. Bear markets have lasted an average of a year since World War II.
The index closed the week -14.42 lower than its all-time high on January 3, 2022, at 4105.02. Compared to Thursday, it gained +0.36% and lost -0.10% from the previous week. A benchmark of U.S. strength, the S&P 500 is up +83.47 from the March 23, 2020, bear market low following the pandemic.
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