Markets show no sign of slowing, even as economy does

MANHATTAN (CN) — All three major U.S. indices kept going strong this week, even as data on sticky inflation and slowing growth continue to roll in.

By the week’s end of trading Thursday, the Dow Jones Industrial Average had gained 332 points, while the Nasdaq lost 49 points. The S&P 500 saw its best first-quarter performance since 2019, gaining 20 points for the week to hit another new high point.

The markets were closed for Good Friday, though futures continued their roll. The Dow and S&P both gained traction while the Nasdaq declined somewhat.

On Friday, the latest inflationary data came out from the U.S. Bureau of Economic Analysis, showing that personal income rose by 0.3% last month after the 1% increase in January.

The BEA’s report is one of the preferred measures of inflation for the Federal Reserve, which has been watching price indices closely. With spending services now back to pre-pandemic levels, most experts believe consumer spending will continue to slow in the coming months.

The good news is that energy and housing services are still trending lower, rising only 0.2% last month, giving the Fed ammunition to begin rate cuts soon.

The bad news is that most households are now under financial pressure due to a drop in wages and hourly earnings, as well as the 1.7% year-over-year increase in real disposable income, the slowest pace seen since late 2022.

“Disposable incomes fell in real terms in February, though the strength of households’ balance sheets meant consumers were able to continue increasing spending,” wrote Michael Pearce at Oxford Economics. “With the economic backdrop still solid and inflation remaining a little stickier, we now forecast the first rate cut from the Fed will come in June rather than May.”

Other metrics this week gave investors reason to keep upward momentum going. The second revision to gross domestic product for the fourth quarter of 2023 showed a 3.4% increase, beating the 3.2% forecast. Consumer spending drove the gains, adding 1.5% of final total, while other areas also were revised upward.

On Friday, the University of Michigan put out its monthly survey which showed another uptick in consumer sentiment from 76.9 in February to 79.4 in March, though not as dramatic as the nearly 15-point increase seen from January to February.

The gains in the consumer expectations index were also not as drastic as the month before, with that index increasing by 75.2 last month to 77.4 points this month.

“Over the first three months of 2024, consumers have consistently expressed that the economy appears to be holding its course,” said survey Chief Economist Joanne Hsu in a statement, though she noted the impending general election in the fall is looming large over consumers’ minds.

“While this general sense of uncertainly does not seem to be depressing attitudes toward the economy, sentiment remains stubbornly shy of the historical average, even as consumers recognize the marked improvements in the economy since the peak of high inflation in mid-2022,” she continued.

Earlier in the week the Conference Board put out its own monthly survey, which similarly showed a slight increase from February to March of about four points. However, the board’s short-term outlook index fell marginally from 76.3 last month to 73.8 this month.

The board noted that any reading of the expectations index below the 80-point threshold usually signals a forthcoming recession. In particular, the board found confidence increased among older consumers above 55 years of age, while younger consumers and those making less than $100,000 a year reported lower confidence.

“Consumers’ assessment of the present situation improved in March, but they also became more pessimistic about the future,” Dana Peterson, chief economist at the Conference Board, said in a statement. “[O]ver the last six months, confidence has been moving sideways with no real trend to the upside or downside either by income or age group.”

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