Looking Behind and Looking Ahead

Dwight Johnson Headshot
Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

In this article we’ll recap the events and news over the past month that mattered most to the economy and markets, your credit union, and your members. Then we’ll look ahead at the key upcoming events you need to know.

Behind us—There were several economic statistics that were delayed due to the shutdown, but what was published was mostly very good. Despite this, the Fed did as expected and issued a very dovish statement. Bonds and stocks both rallied on this.  

  • Nonfarm Payrolls increased by 302k, well above expectations. Seasonal adjustment factors likely flattered the number. There were a several other components that called into question the overall strength of the report, but the number was very good.
  • The Unemployment Rate rose to 4.0% on an increase in the labor pool and government contract workers being unemployed.  
  • Hourly wages remained on a year-over-year basis at 3.2%.
  • Consumer Confidence fell very sharply. The poll was taken during the shutdown, which was likely a contributing factor. But the sharp fall still left confidence at a high level.
  • Auto sales started the new year by posting a sales pace of 17 million, which was the sales pace for 2018.   
  • The FOMC left rates unchanged, but the statement was dovish and a signficant downgrade from the December statement. Jerome Powell made it clear that the Fed is now data dependent and will be patient in any further Fed action. The bond market is now pricing no Fed rate increases in 2019.

Ahead for you—The economic data will be a mix of current data and delayed data.      

  • Feb. 14: Consumer Price Index – This will be important as the Fed is data dependent and inflation will be an important factor.
  • Feb. 14: Retail Sales – This will be the delayed report from December. This will lessen the importance. The Commerce department has not yet scheduled the January number.  
  • Anytime: While the data is important, data will take a very distant backseat to any trade news. A deal with China will not get done by March 1. Equity traders are hoping the tariff deadline will be extended with both sides indicating good progress is being made. Any hint of a negative outcome would send stocks reeling and bond yields falling.

Bottom line—Market psychology, which recovered substantially in January, has moved to neutral as the big issues remain unresolved. Either a very positive scenario or a very negative scenario are possible, and we could see some major reactions in stocks and bonds over the next month.  

Article by Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

Pin It