As a challenging macroeconomic environment persists, PNC economists provide insight into key indicators that may have an impact on current business performance and the path ahead.

Federal Funds Rate Remains Unchanged

  • The Federal Open Market Committee (FOMC) adopted an easing bias at its meeting on January 31, but issued a statement saying the Committee wants further evidence that inflation is moving to 2% for the long run before cutting the federal funds rate. This suggests that the FOMC does not plan to cut the federal funds rate at its next meeting, on March 19 and 20. That said, this is the first time during the current monetary policy cycle where the FOMC has discussed the potential for rate cuts.
  • The FOMC kept the fed funds rate unchanged, in a range between 5.25% and 5.50%.
  • PNC’s baseline view is that the FOMC will first cut the fed funds rate at its meeting on May 1, by 25 basis points. PNC then expects the FOMC to cut the fed funds rate three more times in 2024, each time by 25 basis points, taking the rate to 4.25% to 4.50% by the end of 2024.

Strong Job Growth

  • Job growth in January came in far stronger than expected, at 353,000, according to a survey of firms from the Bureau of Labor Statistics. This was the largest monthly increase in employment since January 2023. There was also significant upward revision to December job growth, from 216,000 to 333,000.
  • The unemployment rate held steady at 3.7% in January, according to a survey of households. The unemployment rate has been below 4% for 24 straight months – the first time this has happened since the late 1960s.
  • Wage growth was strong and reaccelerated on a year-over-year basis. There was an increase in average hourly earnings through the month of 0.6%, the biggest one-month increase since early 2022. On a year-over-year basis average, wage growth was 4.5%, an acceleration from 4.1% in December (before revisions), and the fastest growth in almost one year.
  • The much stronger than expected January jobs report, including upward revisions to job growth than in previous months and a big increase in wages, makes a near-term cut in the fed funds rate less likely.

ISM Services PMI Report

  • The Institute of Supply Management (ISM) Services Purchasing Managers Index (PMI) report for January 2024 posted a gain of two full index points for the month, coming in at 49.1. This is the highest reading for the topline ISM Manufacturing index since October 2022. The report indicates a stable environment for manufacturers and should help to temper expectations of monetary policy easing through much of the first half of 2024.
  • The New Orders sub-index posted a result of 52.5 for the month, its strongest showing since May 2022 (55.1) and the first expansionary reading for the forward-looking New Orders component of the report since that time. But one month does not make a trend, and it is worth noting that the January 2024 result for manufacturers’ Customer Inventories category fell sharply to 43.7, its weakest reading since October 2022. So, some inventory rebuilding seems to be at hand.
  • Commodity Prices for manufacturers spiked to a reading of 52.9, up from 45.2 in December 2023. The fact that the Commodity Prices sub-index saw such a stark gain alongside the first signs of life for New Orders in more than a year validates continued caution against expectations for rapid monetary policy easing from the Fed. Inflation is moving in the right direction, but risks to that progress remain. Should manufacturers’ cost pressures be sustained throughout the next couple of months and demand regains momentum, supply-side inflationary pressure, as a result of producers passing their own costs on to consumers, could easily stall progress toward the Fed’s goal of a sustained 2% pace of inflation. 

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