QUICK QUILL — Powell reinforced the repricing of fewer Fed cuts this year. And yet, while inflation continues to top investors’ worries, the nation’s largest service economy, New York, has silenced the alarm. Reinforcing the ebbing in price pressures within the cyclical durables space is capacity utilization, which has eased outside the auto sector. Given Powell’s guidance, the rate-sensitive auto industry should continue to see falling sales that threaten to manifest as auto production cuts, putting it more in line with the remainder of the industrials recession. The “good news” in the WARN notice hiatus has fed household complacency on the layoff front which could generate more “bad news” for rate-sensitive sectors.
TAKEAWAYS
- In BofA’s April Global Fund Manager Survey, inflation was the top tail risk for 41% of respondents, up 20 points from January and the highest since August 2023’s 45%; geopolitics, another inflationary risk via higher oil prices, vaulted to second place at 24%
- The NY Fed Services survey rebuts Powell’s reiteration that inflation progress has stalled; on a z-score basis, the average of Services Wages, Prices Paid, and Prices Received has flatlined and aligns with the path of QI’s “Ultracore”, or “Supercore” ex-auto repairs and insurance
- On 6MA basis, Non-Auto Durable Mfg Capacity Utilization is down -1.1% vs. a 2.3% gain for Autos alone; while March saw a pullback in WARN notices that has likely helped give households a false sense of security, total IP was down -1.2% on a 6MA basis in March