U.S. Economics – Growth & Inflation

Intro

Over the last week there has been more attention paid to updates in the Atlanta Fed GDP Now for 1Q25, as the q/q estimate ticked down further to an annualized rate of -2.82%. This shift in direction was driven by a slowdown in Imports and Personal Consumption Expenditures. Alongside this change in growth estimates, U.S. Treasury yields, commodity prices, and Fed Funds futures have drifted lower, increasing the probability of a 25-basis point rate cut at the June FOMC meeting.

Growth & Inflation

The Signals:

• • Atlanta Fed GDP Now (Chart 1)
    • The March 3rd release of the Atlanta Fed GDP Now declined to a q/q annualized rate of -2.82%, well below the initial estimate of 2.89% from January 31st.
      • The contribution from Imports declined to -3.27% from an initial estimate of -0.66%, reflecting a potential slowdown relative to the heightened order activity related to front-running tariff policy changes.
      • The contribution from Personal Consumption Expenditures (PCE) declined to 0.01% from an initial estimate of 2.05%, indicative of the January weather-related deceleration in spending, putting early downward pressure on PCE’s full quarter total.
      • The contribution from Gross Private Domestic Investment increased to 0.43% from an initial estimate of 0.36%, which will likely show up in the form of increased inventories following the rise in imports.
  • U.S. Treasury Yields (Chart 2)
    • • 2-year and 10-year yields largely traded sideways from December 17th through February 20th.
        • Since February 20^th, we have observed a downshift in yields alongside other market signals, collectively signaling a slowdown in growth and inflation expectations.
  • Commodities (Chart 3)
    • • The CRB Index, a broad commodity index, moved higher from December 17th through February 19th but started to moderate beginning January 15th as the price of WTI Crude Oil declined.
        • More recently, declines in Agricultural commodities have broadened, reducing the amount of remaining positive price momentum in the CRB Index.
  • Fed Funds Futures (Chart 4)
    • • Focusing on the implied rate change for June’s FOMC meeting, we can see a few notable changes in direction related to key macro release dates and market-based signals.
        • February 7th featured a decline in the unemployment rate (4.0% from 4.1%), increase in average hourly earnings (0.5% m/m from 0.3%), and increase in consumer inflation expectations (4.3% from 3.3%) – expected rate cuts reduced.
        • February 12th featured an acceleration in Headline CPI (0.5% m/m from 0.4%) – expected rate cuts reduced.
        • February 14th featured a decline in retail sales (-0.9% m/m from 0.7%) – expected rate cuts increased.
        • February 19th featured the release of FOMC minutes (2/19 at 2PM EST) – expected rate cuts increased on February 20th.
        • Since February 20th expectations for rate cuts increased alongside the decline in U.S. Treasury yields and commodity prices.
        • On February 28th the implied rate change for June’s FOMC meeting moved below -25 basis points and remains below that mark.

The Takeaway:

• We have observed incremental changes in macro and market data since the middle of February that suggests growth expectations have slowed as policy uncertainty has increased.
• The potential slowdown in growth is likely to coincide with a rate of change deceleration in consumer inflation over the next few months, which has increased the probability of a 25-basis point rate at the June FOMC meeting.

Visuals:

(Chart 1)

Source: Macrobond

(Chart 2)

Source: Koyfin

(Chart 3)

Source: Koyfin

(Chart 4)

Source: Bloomberg

Market Trends:

Source: Macrobond

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.