Medicare Agent News: The Economy's Reality Check

Thursday, December 1, 2022

The Economy's Reality Check

By Alex Eule | Thursday, December 1

Inflation vs. Recession. We've entered the best time of year for stocks -- at least if you're looking at the right stat. Since 1950, the S&P 500 has finished December with positive returns more than any other month -- it's up 73% of the time, according to Dow Jones Market Data.

This year, the S&P 500 will have a bit of catching up to do, after starting the month with a 0.09% loss. Stocks were little moved on the day, despite good news on the inflation front.

Excluding food and energy, personal consumption expenditures were up 0.2% in October, down from September's 0.5% gain. Year-over-year, it was up 5%, also a slowdown from the September pace. PCE is the Fed's preferred measure of inflation and could give officials more incentive to begin slowing their rate increases in the coming months, a theme Fed Chairman Jerome Powell touched on yesterday to the delight of investors.

"The PCE numbers confirmed that it’s a tale of two inflations," Peter Essele, head of portfolio management for Commonwealth Financial Network, wrote today, noting the softening in prices for goods, even as service prices remain stubbornly strong. "Powell’s comments yesterday reconfirmed that the Fed is intent on tackling service elements of inflation, which offered reassurance to investors and sent equity markets higher. If the Fed achieves its goal of a soft landing, the Santa Claus rally that’s forming may evolve into a full-scale bull market in 2023."

At some point, though, even as inflation eases, investors will have to grapple with a slowing economy.

"The outlook for holiday spending is dicey with the saving rate near a record low, the labor market weakening, and home heating costs up sharply from last year," Bill Adams, chief economist for Comerica Bank, noted today.

There are signs that businesses are cutting back, as well. The Institute for Supply Management's November report on manufacturing showed that economic activity in the manufacturing sector contracted last month for the first time since May 2020, when the economy was still in the grips of Covid-19 shutdowns. The data reflect "companies preparing for future lower output," ISM said in a statement.

That reality check could explain why stocks were little moved on the day, despite the better-than-expected inflation reading.

Tomorrow brings a key test for the Fed and the economy when the Labor Department releases its jobs report for November. Analysts forecast that the U.S. economy added 200,000 jobs last month, down from 261,000 in October. The unemployment rate is seen holding steady at 3.7%.

In his speech at the Brookings Institution yesterday, Powell noted that the labor market remains tight. In order to restore price stability to the economy, he's ultimately looking for a monthly job number of less than 200,000. "Job growth remains far in excess of the pace needed to accommodate population growth over time -- about 100,000 per month by many estimates," Powell said yesterday.

Keep that 100,000 figure in mind when the job numbers hit tomorrow morning.