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THE DAILY EDGE: 14 March 2024

Airplane Note: I am travelling in Asia until April 24. Limited equipment and different time zones will limit the frequency and depth of my postings.

Retail Sales Indicate Weaker Pace of Spending at Start of Year

Retail sales bounced back in February, but the underlying details of the release were a bit more mixed, and the all-important “control group” measure of sales suggests some modest downside risk to broader Q1 consumer spending.

Source: U.S. Department of Commerce, U.S. Department of Labor and Wells Fargo Economics

While retail sales bounced 0.6%, that was slightly weaker than we were anticipating and comes with downward revisions at the start of the year which now show January sales declined 1.1%, rather than by the 0.8% drop reported previously. We got the lift we were anticipating from auto sales and building material stores, but the gain in gasoline sales was a bit more muted than expected given higher retail prices during the month and these retail series are nominal, or not adjusted for inflation. Nine of the 13 types of retailers tallied did report a rise in sales last month, which highlights the widespread nature of February sales growth, a notable difference from January.

When we look through some typically-volatile categories of retail such as auto dealers, gasoline stations, building material stores and restaurants, the “control group” measure of sales was flat in February. That was also weaker than we forecast, though it did come with a slight upward revision to January. The result is somewhat of a wash, and, if anything, suggests some modest downside risk to Q1 consumer spending given this tally of retail is factored into estimates of broader personal spending. Cutting through some monthly volatility, control group sales have been flat on average over the past three months. Consumer spending is moderating.

Source: U.S. Department of Commerce and Wells Fargo Economics

It is increasingly evident that after years of a devil-may-care approach to spending, consumers have at last shown signs of being more reserved at the start of this year. In January, we saw a pivot from discretionary items back to non-discretionary purchases in the broader personal spending release. Today’s retail sales data are a bit more mixed in terms of the drivers, but over the past year we have seen more of a pullback in sales at retailers more likely to sell large durable items like autos, furniture, electronics, sporting goods, which tend to not only come with a higher purchase price but may also require financing. There’s ultimately more competition for consumers dollars today while still-high prices for frequent purchases like food and gasoline may be diverting discretionary funds, just as higher interest payments may also be somewhat crowding out consumption.

Despite recent moderation, we ultimately do not think consumer spending is poised to slow meaningfully. Consumer momentum likely remains intact amid a still-sturdy labor market offering support to spending this year, even if that pace of spending is set to moderate. Separately released data this morning on jobless claims showed a still-low level of people filing initial claims for unemployment insurance, while continuing jobless claims continue to gradually drift higher. While the labor market is still sturdy with layoffs still low, for those who lose their job it appears it’s not quite as easy to find a new one today as it was a couple of years ago.

We’ve long cautioned that it will be personal income that dictates the pace of spending this year. As the labor market moderates we should continue to see income growth slow as well, which will exert downward pressure on spending. The upshot of that moderation should be less demand-pull on inflation, which would be welcome news for the Fed once it more fully materializes in the consumer price estimates.

After super-strong demand last year, retail sales growth slowed in less important January-February. Keep in mind, however, that durable goods prices are still deflating 1.5% YoY. Aggregate weekly payrolls were up 5.3% YoY in February.

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Likely related:

US Producer Prices Jump, Adding to Signs of Persisting Inflation Core and broader measures exceed estimates for modest rises

The producer price index for final demand increased 0.6% from January, Labor Department data showed Thursday. The gauge rose 1.6% from a year earlier, the largest annual advance since September.

The so-called core PPI, which excludes volatile food and energy categories, advanced 0.3% from the prior month, and 2% from a year ago.

The pickup in cost pressures at the wholesale level illustrates an uneven path for Federal Reserve policymakers seeking greater progress in their inflation fight. Consumer-price data earlier this week showed underlying inflation exceeded forecasts for a second month, reaffirming expectations that the Fed will be in no rush to reduce interest rates. (…)

Prices paid to producers for goods jumped 1.2%, the first increase in five months. Nearly 70% of the advance was due to energy costs.

Stripping out food, energy and trade services, which is an even-less-volatile PPI measure, prices increased 0.4% after a 0.6% gain.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, rose for the first time in five months on a jump in energy. Excluding food and energy, processed goods for intermediate demand rose 0.5%, the most since May 2022.

Goldman Sachs: “Based on details in the PPI and CPI reports, we estimate that the core PCE price index rose 0.29% in February (vs. our previous estimate of 0.27%), corresponding to a year-over-year rate of +2.81%. Additionally, we expect that the headline PCE price index increased 0.36% in February, or increased 2.47% from a year earlier.”

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PPI Double Beat Brings Back Memories of Volcker, Jackson Hole

Scorching wholesale inflation data amidst this morning’s lower-than-expected unemployment claims are sending market players back to the drawing board as they reevaluate the path of potential Fed rate cuts. The year has certainly seen monetary policy expectations shift considerably, as investors are now thinking that rate relief may arrive in July rather than June, with expectations now nearing coin flip odds for the earlier month.

Wholesale inflation posted a double beat in February while accelerating for the second-consecutive month, as services, goods and commodities all experienced material price gains. February’s Producer Price Index (PPI) rose 0.6% month over month (m/m) and 1.6% year over year (y/y), shattering expectations of just 0.3% and 1.1% and gaining from January’s rates of 0.3% and 1%. Core figures, which exclude food and energy, also beat projections, rising 0.3% m/m and 2% y/y versus estimates of 0.2% and 1.9% and the previous period’s 0.5% and 2%.

Wholesale price gains were broad, with goods and commodities leading while services gained at more tempered levels. Energy, with a 4.4% increase, climbed the most followed by foods, with a gain of 1%, and the transportation and warehousing category, which jumped 0.9%. The other services category increased 0.5% while trade services experienced price relief of -0.3% during the period.

Wholesale inflation posts a double beat, accelerating at the fastest pace since August

Commodities Helped in ’23, But Hurt in ‘24

Commodities are continuing to provide inflationary pressure with West Texas Intermediate Crude climbing above $81 a barrel today after lumber and copper prices hit 12-month highs yesterday. Oil prices climbed sharply on supply concerns following Ukraine’s two-day drone attack on Russia that included oil facility targets. Ukraine has attacked approximately 25% of Russia’s refinery capacity so far this year and the most recent attack hit a facility that can process 340,000 barrels a day. Meanwhile, demand for lumber and copper is likely to increase as manufacturers and real estate developers pounce on looser financial conditions and firmer animal spirits.

Commodity prices reach the highest levels of the year

Labor Market Pressure Persists

Labor market conditions remained tight this month, with unemployment claims trending lower and pointing to sustainable headcounts across the economy. Initial unemployment claims fell to 209,000 for the week ended March 9, below estimates of 218,000 and the previous week’s 210,000. Continuing claims rose to 1.811 million for the week ended March 2, below projections of 1.9 million but slightly higher than the previous period’s 1.794 million. Continuing unemployment claims benefited greatly from downside revisions, bringing the figure significantly below the pivotal 1.9 million threshold. The four-week moving average for both figures shifted from 209,500 and 1.837 million to 208,500 and 1.799 million.

Unemployment claims trend lower, indicating tight conditions

Will Powell Pitch a Slider or Whip a U-Turn?

August 2022 comes to mind when examining the current trend of inflation amidst animal spirits in markets. At the time, the S&P 500 rose from 3636 to 4324, a 19% rally off of comments from Fed Chair Powell emphasizing that the current posture of the central bank was neutral, even though the Fed funds rate was at a midpoint of just 2.38%. The reignition of commodity prices, a few hotter inflation reports and bullish exuberance in markets led Powell to show up fiercely in Jackson Hole, Wyoming.

Powell threw the ferocious slider pitch that no one was expecting, which led to a 20% S&P 500 drop from August to the October lows of 3491. He even mentioned economic pain. Next week provides another opportunity for Powell to redeem himself against the backdrop of inflation. Will he throw the old-fashioned Jackson Hole slider, or will he pull a Nascar style, Washington D.C. U-Turn. Will he continue to support the interests of Wall Street, or will he acknowledge that accelerating inflation is painfully damaging to Main Street?

The conditions bring to mind an observation from Paul Volcker, the legendary Fed chair that slayed inflation in the 80s, who opinioned “The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking, in effect standing by while bubbles and excesses threaten financial markets. Ironically, the “easy money,” striving for a “little inflation” as a means of forestalling deflation, could, in the end, be what brings it about.

The Ides or March?

China’s Xi Jinping wants market-ready scientific research

(…) China’s conversion rate for scientific and technological achievements in 2021 were a mere 6%, and its invention patent industrialization rate 36.7% (…). In comparison, corresponding figures for the US were 50% and nearly 80% respectively. (…)

Chinese-origin researchers stand out in Apple’s 2024 AI scholarship programme, shining a light on mainland’s brain drain

Researchers of Chinese origin comprised more than half of this year’s recipients of Apple’s annual fellowship programme on artificial intelligence (AI), shining a light on a brain drain that threatens the nation’s ambition to become a global powerhouse in that critical technology.

The 2024 Apple Scholars in AIML PhD fellowship – focused on machine learning, a branch of AI concerned with developing algorithms and statistical models for computer systems – shows that 11 of the 21 admitted to the programme were of Chinese origin, based on their names and academic background that include bachelor’s level studies on the mainland, according to a list published on Tuesday by Apple on its website.

At least seven of the 11 fellowship recipients completed their undergraduate studies on the mainland and pursued further studies overseas, primarily in the United States. (…)

The rising number of Chinese researchers admitted into that programme and other AI-related opportunities in America reflects the mainland’s continuing struggle with brain drain, compared with a brain gain for the US.

A continued talent exodus could put China at a big disadvantage, nearly seven years since Beijing made AI a national priority to establish the country as “the world’s premier artificial intelligence innovation centre” by 2030.

While China has expanded its AI talent pool over the last few years to meet growing domestic demand, the US remains the top destination for top-tier AI researchers to work, according to Chicago-based MacroPolo’s latest AI Talent Tracker report, which compares global movement in 2022 and 2019. MacroPolo operates under the Paulson Institute, an independent think tank focused on US-China relations.

The report found that China and the US are the leading countries of origin of the world’s top-tier AI researchers, which MacroPolo defined as the top 20 per cent of such elite researchers based on undergraduate degrees. China had a dominant 47 per cent share in 2022, up from 29 per cent in 2019. The US reached 18 per cent in 2022, down from 20 per cent in 2019.

The US, however, is still the leading country where top-tier AI researchers work. The US share reached 42 per cent in 2022, compared with 59 per cent in 2019. China managed to grow its share to 28 per cent in 2022, up from 11 per cent in 2019.

MacroPolo data showed that China has become the leading country of origin of top-tier AI researchers working in US institutions, with a 38 per cent share in 2022 from 27 per cent in 2019. The US followed with a 37 per cent share in 2022, up from 2019’s 31 per cent.

Within US institutions, researchers of American and Chinese origin comprised 75 per cent of the top-tier AI talent in 2022, up from 58 per cent in 2019.

The US is home to about 60 per cent of the world’s top AI institutions, according to MacroPolo. These included the likes of Google, Stanford University, the Massachusetts Institute of Technology, Carnegie Mellon University, Microsoft Research and Meta Platforms.

After completing their PhD in the US, a vast majority of non-American AI talent stay in the US, according to MacroPolo. Chinese researchers who opt to work in the US after obtaining their PhD doubled to 8 per cent in 2022 from 4 per cent in 2019.

While the demand for AI talent is high on the mainland, there has been a lack of suitable candidates amid growing opportunities overseas. For every five new jobs in AI in China, there are only two qualified workers in the market, according to a report published late last year by Maimai, a career social network.

TRAVEL NOTES
China EV war: BYD prices a fifth car below 100,000 yuan threshold as it takes offensive in market-share battle Updated e2 compact SUV will start at 89,800 yuan (US$12,507), 12.6 per cent less than the previous price

BYD, the world’s largest electric vehicle (EV) maker, has priced another model under the 100,000 yuan (US$13,912) threshold as a discount war in China’s EV market intensifies.

The Shenzhen-based company, backed by Warren Buffett’s Berkshire Hathaway, announced on Wednesday that the updated fully electric e2 model will start at 89,800 yuan, 12.6 per cent less than the previous price of 102,800 yuan.

The compact sport-utility vehicle, with a range of 405 kilometres, becomes the fifth BYD model available for less than the psychologically important threshold price – viewed as affordable even for low-income wage earners in the mainland China market. (…)

Among the five models, only the budget Seagull hatchback previously sold for less than 100,000 yuan. BYD marked the entry-level edition of the car down by 4,000 yuan to 69,800 yuan [US$ 9700] last Wednesday. Price cuts over the past three weeks pushed the basic editions of the other four models – the e2, Qin Plus DM-i plug-in hybrid, Dolphin and Chaser 05 – below 100,000 yuan.

Since February 18, BYD has been slashing prices for nearly all of its cars to stay ahead of the competition as EV sales in the world’s largest market showed signs of slowing.

Many of BYD’s rivals, including Xpeng, Zeekr and SAIC-GM-Wuling, General Motors’ three-way venture in China, have followed its move to reduce prices of their bestselling models in the cutthroat market.

BYD delivered 3.02 million pure electric and plug-in hybrid vehicles to customers at home and abroad in 2023, a year-on-year increase of 62.3 per cent. Most of its sales were on the mainland, with exports accounting for only 242,765 units, or 8 per cent of the total. But the exports represented a 334 per cent jump over 2022. (…)

In China, about 40 per cent of new cars taking to the streets are now powered by batteries, buoyed by drivers’ increasing penchant for electric cars featuring autonomous driving systems and digital cockpits.

In January, BYD announced it would invest 100 billion yuan in ­developing smart cars, in an apparent effort to challenge Tesla and other mainland rivals such as Nio and Xpeng in the premium EV segment. (…)

My son David and I have been researching the EV market in the past year. I have driven Teslas for several years and considered them outstanding cars. However, our research led us to consider BYD as the best EV car manufacturer in the world. BYD is totally integrated with best in class batteries (with lifelong guarantees, vs Tesla’s 8 years) and superior software (after all, EV cars are giant ipads on wheels).

The cars Suzanne and I saw in a HK dealership last week were very well designed and built, with very comfortable and thoughtful interiors. The BYD sales representative said the “export cars” are better built than the “China cars” to meet all western crash tests.

BYD is quickly invading the world with more affordable cars. Some countries are trying to protect their domestic manufacturers with tariffs and other measures. In the USA, a 27% tariff won’t be sufficient if BYD builds and ships from NAFTA member Mexico, so Congress is mulling banning cars operated with Chinese software for “national security” reasons even if it means Americans paying thousand dollars more for their cars, electric or not.

We shall see if China eventually cuts Tesla from the largest market in the world.

Last January:

Tesla CEO Musk: Chinese EV firms will ‘demolish’ rivals without trade barriers

(…) Chinese car companies were the “most competitive” and “will have significant success outside of China, depending on what kind of tariffs or trade barriers are established,” Musk said on a post-earnings call with analysts on Wednesday.

“If there are no trade barriers established, they will pretty much demolish most other car companies in the world,” he said. “They’re extremely good.” (…)

On Wednesday, Musk warned Tesla was reaching “the natural limit of cost down” with its existing lineup. (…)

President Joe Biden has said China was determined to dominate the EV market and that he “won’t let that happen”. (…)

THE DAILY EDGE: 13 March 2024

Airplane Note: I will be travelling in Asia until April 24. Limited equipment and different time zones will limit the frequency and depth of my postings.

I arrived in Hong Kong yesterday. This is what I got when browsing for the official BLS inflation data:

Access Denied

You don’t have permission to access “http://www.bls.gov/” on this server.

February CPI: FOMC Still Searching for Confidence

The February consumer price data came in a touch stronger than expected. The headline CPI increased 0.4% in the month, led by higher gasoline prices (+3.8%). Excluding food and energy prices, core inflation also registered 0.4%. However, the unrounded 0.36% bump in core CPI was not too far off our forecast for a 0.30% gain.

Furthermore, core price growth was flattered by bigger than expected increases in volatile components such as used autos and airfares. Housing inflation cooled as owners’ equivalent rent increased 0.4%, a step down from the eye-catching 0.6% jump in January.

In our view, the details of today’s CPI report generally were encouraging. We expect core goods deflation to return in the coming months amid improved supply chains and less supportive seasonal factors. The much-anticipated slowdown in primary shelter inflation is ongoing. A cooling jobs market has brought about slower labor cost growth, and the widespread easing in this month’s “super core” suggests services inflation may not be as sticky as some feared following last month’s CPI report

That said, we doubt today’s report fills the FOMC with the confidence it needs to begin cutting rates. The core CPI has risen at 4.2% annualized rate over the past three months, which is a bit higher than the 3.8% increase in core prices over the past 12 months. We expect disinflation progress to resume in the coming months for the reasons listed above, but we think the FOMC will need to see it to believe it.

The first rate cut from the FOMC looks increasingly likely to occur this summer.

Source: U.S. Department of Labor and Wells Fargo Economics

Consumer prices advanced 0.4% in February, in line with consensus expectations. The overall energy index, which accounts for a little under 7% of the CPI, increased 2.3% in February. As expected, the headline CPI was lifted by a jump in gasoline prices (+3.8%). Compared to one year ago, gasoline prices are still down 3.9%. Energy services rose a smaller 0.8%, led by utility gas service (+2.3%). Food inflation was more benign in February, with prices unchanged in the month. Grocery store prices were flat while prices at restaurants and bars increased 0.1%—the smallest monthly increase in three years. Over the past year, food inflation has cooled significantly and is now back in line with pre-pandemic norms.

Excluding food and energy, the gain in CPI was a touch stronger than expected. The core index advanced 0.36%, a bit above the Bloomberg consensus and our own expectation for a 0.30% gain. The somewhat firmer reading stemmed from core goods, which rose for the first time in eight months (+0.1%). (…) Contributing to the rise was a small rebound in prices for used vehicles, apparel and education and communication goods, which offset declines in new vehicles, motor vehicle equipment, household and recreational goods. (…)

Core services, on the other hand, cooled largely as expected. A 0.7% jump in core services in January drove inflation’s unexpected pop to start the year. In February, core services prices advanced “just” 0.5% (0.46% before rounding). After making waves in January, owners’ equivalent rent growth eased in February (+0.4%). With rent of primary residences picking up in February (+0.5%), last month’s eye-catching gap between the two largest components of the CPI collapsed.

Through the recent monthly volatility, the trend in housing inflation remains downward. Both the year-over-year rate of OER and rent of primary residences registered the smallest increases since the summer of 2022, and a further slide appears in store with private-sector measures of rent growth having largely returned to their pre-pandemic rates.

Source: U.S. Department of Labor, Zillow Inc. and Wells Fargo Economics

Excluding primary shelter, core services also advanced at a less concerning rate in February. The CPI version of the “super core”, watched by Fed officials to better gauge services inflation given the long lag in shelter inflation, advanced 0.4% after a 0.9% gain in January. The more moderate reading was helped along by a partial reversal of last month’s jump in medical and personal care services, as well as smaller monthly gains in lodging away from home, motor vehicle insurance and maintenance services. The broad cooling in the CPI “super core” in February suggests services inflation is not as sticky as initially feared following January’s sharp upside surprise.

Source: U.S. Department of Labor and Wells Fargo Economics

On a year-ago basis, consumer prices are up 3.2%, a more palatable increase than the 6.0% increase registered this time last year but little different from the past few months. The recent pace of core inflation, having registered a 4.2% annualized rate over the past three months, also points to some near-term stalling in inflation’s descent.

However, we expect the lack of recent progress to be temporary. Price pressures across the economy continue to broadly abate. Labor costs are cooling as the jobs market softens. Consumers, while still spending, are not the price-takers they were a year or two ago as revenge spending dissipates and delinquencies creep higher. The supply chain kinks that helped drive core goods inflation to 47-year high largely have unwound, making it easier for businesses to secure product. In a separate report this morning, the February NFIB Small Business Optimism Index showed the smallest share of businesses raising prices in three years.

While a downward trend in inflation remains in place in our view, the slow progress seen over the past few months is likely to keep the Fed searching for a bit more confidence that inflation is on a sustained path back to its 2% target. The first rate cut from the FOMC looks increasingly likely to occur this summer.

Goldman Sachs keeps analyzing even the smallest items but its 6-m change chart does not look great, does it?

February core CPI rose 0.36%, 6bp above consensus expectations, and the year-on-year rate fell one tenth to 3.8%.

The composition was disinflationary however, with a sharp normalization in non-housing services inflation (+0.47% vs. +0.85% in January and +0.33% average in Q4) and a return to the Q4 trend for the owners’ equivalent rent category (+0.44%).

These inflections support our view that last month’s report received a one-time boost from the January effect and from sample-related volatility in OER. Within non-housing services, February inflation slowed in labor-reliant categories including medical services (-0.1% vs. +0.7% in February), car insurance (+0.9% vs. +1.4%), car repair (+0.4% vs. +0.8%), and personal care services (+0.3% vs. +0.7%), though daycare prices remained strong (+0.9% vs. +0.7%). Food away from home—which flows into the core PCE but is not in core CPI—was also soft (+0.1% vs. +0.5%).

The large and persistent owners’ equivalent rent category (OER) retraced its January spike, though the rent category was slightly above our expectations (+0.46% vs. GS +0.42% and prior +0.36%). Used car prices surprisingly rose 0.5%, and we expect a return to declines in the spring given the continued rebound in auto inventories and decline in auction prices. Airfares (+3.6%), apparel (+0.6%), and tobacco (+0.8%) prices also rose. Communications prices increased sharply (+0.5%) for the second straight month and will boost the PCE measure. Headline CPI rose 0.44%, as energy prices rose 2.3% and food prices were unchanged.

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“Deflationary” as Goldman claims? “Temporary lack of progress” per Wells Fargo?

The Cleveland Fed’s Median CPI printed +0.4% in February after +0.5% in January and +0.3% in December. Last 3 months: +4.9% a.r. vs +4.5% in the previous 3 months. The 16% trimmed-mean CPI: +4.5% a.r. in the last 3 months vs +3.6% in the previous 3 months.

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Meanwhile, CPI-Services is no longer trending towards the pre-pandemic growth rates. Maybe only “temporary”.

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Much depends on wages. Through January, the Atlanta Fed`s composition adjusted wage tracker shows a stalling in the wage growth trends:

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Ed Yardeni’s views is dominant in this market:

However, excluding shelter (which is a lagging component of the CPI and a flawed measure of current market rents), the headline and core CPI inflation rates are only 1.8% and 2.2% y/y.

Ed has been mostly right so far this cycle but his “lagging and flawed measure of current market rents” is debatable. Zillow’s is arguably the best measure of market rent. CPI-Rent growth MoM has now converged.

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NFIB Small Business Optimism Index Dips in February Inflation Continues to Hold Down Small Business Confidence

NFIB’s Small Business Optimism Index fell to the lowest level since May 2023 during February. Firms reported seeing improvements in terms of labor availability, while a lower share of firms raised selling prices during the month. Expectations for real sales and better credit conditions also notched improvements during the month. On balance, however, most other components slipped, notably hiring and capex plans. What’s more, the share of small businesses reporting inflation as the single most important operational problem rose during the month, overtaking labor quality at the top of the list.

Source: NFIB and Wells Fargo Economics

  • The NFIB Small Business Optimism Index fell to 89.4 in February. Although confidence has shown signs of improvement at various times, the headline index has mostly bounced around at a level well below the long-term historical average over the past two years.

  • The lack of meaningful improvement largely reflects ongoing challenges dealing with higher costs for materials, labor and financing. The share of small businesses reporting inflation as the single most important operational problem continues to be elevated and turned up further in February. Although inflation appears to be subsiding on trend, small businesses still appear to be having difficulties balancing the sharp rise in prices over past several years with slowing sales and uncertain future demand.

  • Expectations for real sales notched an improvement during the month, however the subindex is still very depressed relative to recent periods of economic expansion. Lower earnings expectations coincides with a generally dim outlook for the economy. The share of firms expecting the economy to improve over the next six months, which has trended slightly higher over the past year, edged lower in February and is still close to its recent low point.
  • Small firms have seen some improvements recently. For example, labor availability for small firms looks to be getting better. During February, the share of businesses reporting labor quality as a top problem fell to the lowest share since April 2020. Difficult to fill job openings also declined.
  • Labor cost pressures appear to be easing as a result. The share of firms raising compensation, both currently and expecting to in the near future, both dipped during the month.
  • On the other hand, hiring intentions for small firms sunk to a low not seen since May 2020 during the throes of the pandemic. The drop suggests the labor market may start to lose momentum over the coming months.
  • The share of firms which are currently raising prices continues to decline and is now at the lowest reading since January 2021. Encouragingly, the share expecting to raise prices, which spurted higher over the past several months, pulled back slightly during February.

Source: NFIB and Wells Fargo Economics

Source: NFIB and Wells Fargo Economics

Source: NFIB and Wells Fargo Economics
SENTIMENT WATCH

The company [NVDA] will be hosting its AI conference in San Jose at the beginning of next week:

“Come connect with a dream team of industry luminaries, developers, researchers, and business strategists helping shape what’s next in AI and accelerated computing. From the highly anticipated keynote by NVIDIA CEO Jensen Huang to over 900 inspiring sessions, 300+ exhibits, 20+ technical workshops covering generative AI and more…” It’s hard to imagine being short tech stocks ahead of this AI happening.

Helping to drive the S&P 500 to a new record high today was Oracle, which soared after reporting better than expected results (chart). Microsoft rents GPUs from Oracle to run the AI functions of its Bing search engine. Founder Larry Ellison said, “We’re building an AI data center in the United States where you could park eight Boeing 747 nose-to-tail in that one data center.” (Ed Yardeni)