U.S. Economy

In the first quarter of 2024, the U.S. economy grew at an annualized rate of 1.6%, the slowest pace since 2022, as a widening trade deficit and inventory buildup tempered overall growth. Consumer spending rose by 2.5%, down from 3.3% in the previous quarter, with reduced spending on motor vehicles and gasoline offset by increases in healthcare and financial services.

The trade deficit widened to $973.2 billion from $918.5 billion in Q4, subtracting 0.86 percentage points
from GDP growth. The slowdown in inventory accumulation subtracted 0.35 percentage points.
Government spending decelerated to a 1.2% pace from 4.6% in Q4, with declines in defense spending at
the federal level.

Business spending picked up, particularly in artificial intelligence investments, while residential investment
recorded its fastest growth since Q4 2020 due to rising home sales and construction despite higher
mortgage rates. However, nonresidential structures, like factories, contracted due to the fading impact of
government policies encouraging semiconductor manufacturing.

Policymakers remain focused on controlling inflation while fostering growth, as rising prices and taxes
eroded disposable income gains. Real disposable income grew by 1.1%, down from a 2.0% pace in Q4.
The savings rate fell to 3.6% from 4.0%, highlighting the risk inflation poses to near-term consumption.

Federal Reserve, Inflation, and Employment

The Federal Reserve is navigating a challenging economic environment as inflation remains elevated and the labor market shows resilience. According to Reuters, the core Personal Consumption Expenditures (PCE) price index, which excludes volatile food and energy prices, rose at an annualized rate of 3.7% in Q1 2024, up from 2.0% in Q4 2023. This rise was driven mainly by higher costs for services like transportation, insurance, and housing, although it was offset by lower prices for goods.

Employment data signaled continued strength in the labor market, with initial jobless claims falling to
207,000. Continuing claims also decreased to 1.781 million, indicating steady hiring levels and a likely
consistent unemployment rate of around 3.8%. The labor market’s robustness continues to support
consumer spending, which accounts for more than two-thirds of U.S. economic activity.

Despite global economic headwinds, the U.S. economy continues to outperform other advanced nations.
The Treasury Department highlighted robust job gains in recent months as businesses remain confident
in their hiring plans, even as some sectors face economic uncertainties.

In her recent speech, Federal Reserve Governor Michelle Bowman acknowledged the challenges of
achieving the dual mandate of maximum employment and stable prices. After its meeting on May 1, the
Federal Open Market Committee (FOMC) decided to hold the benchmark interest rate steady within the
5.25%-5.50% range. The FOMC noted that inflation remains elevated and that labor market conditions
are strong, reinforcing the need for a cautious and measured approach to monetary policy. The Fed remains ready to act if economic data show a significant shift in conditions, prioritizing its long-term goals of reducing inflation to the 2% target while maintaining a robust labor market.

U.S. Stock Market

In the first quarter of 2024, the U.S. stock market displayed resilience amid slowing GDP growth and persistent inflation. Despite these challenges, both the S&P 500 and Nasdaq Composite indices delivered strong gains, buoyed by the Federal Reserve’s steady monetary policy and corporate earnings.

The S&P 500 rose by more than 10% during the quarter, primarily driven by gains in technology, communication services, financials, and industrial sectors. These industries benefited from expectations of continued stability in interest rates and broader economic recovery. The tech-heavy Nasdaq Composite index surged to a record high of more than 9%, reflecting optimism among investors for technology-driven business models which are higher margin and lighter on the use of labor and materials.

Investor sentiment initially wavered due to economic headwinds, including slowing GDP growth and persistent inflation. However, the Federal Reserve’s supportive stance, signaling no immediate rate hikes, prompted rallies across equity markets. Technology stocks led this rally, underscoring confidence in techdriven growth despite supply chain challenges and rising input costs. Corporate earnings also remained a key driver, with many companies exceeding expectations.

The yield on the benchmark 10-year Treasury was at approximately 4.72% as of the end of Q1, up from 3.86% at the end of last year. Despite the increase in Treasury yields, stocks managed to remain steady this quarter, unlike in 2023 when rising yields put tremendous pressure on equities.

Data Sources: U.S. Census Bureau, U.S. Chamber of Commerce, U.S. Department of the Treasury, U.S. Bureau of Labor Statistics, CBRE Research, CBRE Econometric Advisors, Bloomberg, Reuters, Schroders, WSJ.com, Zillow Group, Redfin, S&P Global, CNN Business, CBS News, World Economic Forum, The Conference Board & Deloitte Insights

For additional information, please contact:
Grandway Group
Attn:     Client Relations
Tel:        +1 626-357-1200
Email:   Client-Relations@grandway.com

U.S. Economy

In Q4 2023, the U.S. economy defied previous recession fears, delivering a robust performance with a 3.3% annual GDP growth rate. The Bureau of Economic Analysis previously estimated growth to be around 2.0%, suggesting that the economy outperformed forecasts by a sizeable margin. This growth was driven by a combination of strong consumer spending, a significant uptick in exports, and increased government and business investment, showcasing the economy’s resilience in the face of global uncertainties. Notably, the economy’s strength was underpinned by elevated labor force participation and the resolution of supply chain challenges, which bolstered productive capacity and created a conducive environment for sustained economic expansion without exacerbating inflationary pressures.

Further dissecting the GDP components reveals a comprehensive picture of the economic momentum. Private domestic final purchases (PDFP), which include personal consumption, business fixed investment, and residential investment, emerged as a pivotal driver, contributing significantly to GDP growth. This component, which reflects the private sector’s capacity for self-sustaining growth, grew by a solid 2.6% at an annual rate. Such robust internal demand, coupled with a favorable labor market and rising real incomes, underpinned the strong household spending on goods and services, albeit with a moderated growth in goods purchases compared to the previous quarter. The acceleration in service consumption, particularly outside of rent, food services, and financial services, underscores the diversified strengths of the U.S. economy heading into 2024.

The policymakers’ focus on expanding the nation’s productive capacity through significant investments in clean energy, manufacturing, and infrastructure is expected to further enhance economic resilience. These initiatives aim to bolster the economy’s foundational sectors, ensuring sustained momentum and positioning the U.S. favorably for continued growth amidst potential geopolitical shifts and domestic challenges.

Federal Reserve, Inflation, and Employment

The Federal Reserve’s policies in Q4 2023 were instrumental in guiding the U.S. economy toward a stable growth path while managing inflationary pressures. The central bank’s strategic stance of maintaining interest rates at their current levels was aimed at balancing the dual mandate of fostering economic growth and controlling inflation. The average monthly inflation rate, as measured by the CPI, was 0.1% in the fourth quarter, down from 0.4% during the third quarter. The moderation in inflation, with headline inflation cooling further due to decreased energy prices, is showing some early success for these policies. Despite this progress, core inflation remains unchanged at an average of 0.3% per month, above the Fed’s target, signaling the need for continued vigilance and policy calibration.

Employment trends in Q4 2023 demonstrated the labor market’s resilience, with a robust average job creation rate of 165,000 per month. While this was a slower rate than the third quarter average rate of 221,000 per month, it was well above the pace needed to match population growth, thus maintaining low unemployment levels without adding to inflationary pressures. This balance between job growth and labor supply underscores the economy’s capacity to maintain expansion without overheating. However, potential risks, including geopolitical tensions and domestic policy shifts, could impact labor market dynamics and inflation trajectories, necessitating a cautious and adaptive policy approach from the Federal Reserve going forward.

The anticipated shift towards a more dovish monetary policy, signaled by the Federal Reserve’s revised projections for interest rate cuts in 2024, reflects a strategic pivot in response to the evolving economic landscape. This shift, driven by improved inflation outlooks and sustained labor market strength, is expected to support continued economic growth while gradually steering inflation toward the target level.

U.S. Stock Market

The U.S. stock market’s performance in Q4 2023 was marked by some volatility, ultimately culminating in a positive turnaround buoyed by broader economic indicators and corporate earnings. The anticipation of a more accommodative monetary policy by the Federal Reserve, including prospective rate cuts in 2024, played a pivotal role in bolstering market sentiment. This outlook, coupled with the easing of inflationary pressures and robust labor market conditions, helped stabilize the market after earlier volatility.

Investor sentiment in Q4 was significantly influenced by the Federal Reserve’s increasingly dovish tone, especially in December, which sent a rally across both equity and fixed-income markets. The bond market, in particular, witnessed a strong quarterly performance driven by the shift in monetary policy expectations. Government bond yields saw a sharp decline, with the U.S. 10-year Treasury yield dropping from 4.57% at the end of Q3 to 3.87% by the end of Q4, illustrating the market’s increased optimism as a result of the Federal Reserve’s policy adjustments.

Looking ahead, the strategic positioning within the stock market will be crucial as investors navigate a changing economic and monetary landscape. The sectors leading the recovery, particularly technology and consumer discretionary, have a strong correlation with economic expansion, suggesting that investors are optimistic about near-term economic growth. However, the market’s future trajectory will be contingent on continued economic resilience, the Federal Reserve’s policy maneuvers, and the global economic backdrop. As such, we propose a cautiously optimistic outlook for sustained market recovery and growth in 2024.

Data Sources: U.S. Census Bureau, U.S. Chamber of Commerce, U.S. Department of the Treasury, U.S. Bureau of Labor Statistics, CBRE Research, CBRE Econometric Advisors, Bloomberg, Reuters, Schroders, WSJ.com, Zillow Group, Redfin, S&P Global, CNN Business, CBS News, World Economic Forum, The Conference Board & Deloitte Insights

For additional information, please contact:
Grandway Group
Attn:     Client Relations
Tel:        +1 626-357-1200
Email:   Client-Relations@grandway.com

U.S. Economy

The U.S. economy displayed remarkable performance in Q3 2023, with real GDP growing at an annual rate of 4.9%, invigorated by robust household consumption and a stronger buildup in private inventories. The Commerce Department’s Bureau of Economic Analysis highlighted this as the fastest pace of growth in nearly two years, signaling an economy that continues to defy recessionary fears. The increase in consumer spending was particularly notable, jumping to a 4.0% rate from a modest 0.8% in Q2, a clear testament to the resilience of the American consumer amidst various economic headwinds.

The acceleration in residential investment also played a critical role in this economic expansion, marking a rebound after contracting for nine consecutive quarters. This turnaround was indicative of the housing market’s recovery, likely fueled by continued under-supply and a persistent demand for housing. Despite these strong indicators, there is a potential risk factor in the form of the declining saving rate, which dipped to 3.8% from 5.2% in the preceding quarter. This suggests that some consumer spending may be drawing on savings, reflecting a possible shift towards a reliance on credit.

Moreover, the economic buoyancy was complemented by government spending, which picked up significantly in Q3. However, the business investment component sent mixed signals, with a slight dip observed for the first time in two years. This decline in business outlays, especially in equipment spending and a slowdown in construction investment related to semiconductor manufacturing, may signal caution in the business sector about the longevity of the current economic growth pace.

Federal Reserve, Inflation, and Employment

The Federal Reserve’s stance in Q3 was one of careful management, as it continued to steer the economy through a period of inflationary pressure that has begun to show signs of abatement. The core inflation rate, which excludes volatile food and energy prices, was stable. The average monthly inflation rate, as measured by the CPI, was 0.4 percent in the third quarter, up from 0.2 percent during the second quarter. This moderation in inflation is a positive sign that the aggressive interest rate hikes by the Federal Reserve may be achieving their intended effect without unduly hampering economic growth.

In the labor market, robust job creation was a highlight for the quarter, with an average of 266,000 jobs added per month, surpassing the rates necessary to keep up with population growth and maintain a stable unemployment rate. This strong labor demand reflects the economy’s resilience. The unemployment rate increased modestly to 3.8% in Q3, possibly attributed to increased labor force participation, with more individuals now actively seeking work. This is corroborated by the fact that the labor force participation rate and the prime-age participation rate are at post-pandemic highs, suggesting a labor market that remains fundamentally healthy.

Despite the above, the Federal Reserve continues to signal caution, with policymakers indicating the likelihood of further rate hikes. The Fed’s revised forecast for interest rates shows a higher average rate during 2024, suggesting a sustained period of tighter monetary policy. The challenge for the Fed is to manage these rate increases in a way that controls inflation without precipitating a significant slowdown in economic activity. The balance of indicators suggests that while the economy is robust, the Fed is preparing for a more subdued pace of growth in the quarters ahead.

U.S. Stock Market

During Q3 2023, the U.S. stock market reflected the broader global trend, with equities posting negative returns, signaling a shift in investor sentiment. After the optimism of the first half of the year, investors reevaluated their positions in light of the Federal Reserve’s revised projections for a prolonged period of higher interest rates. This shift was evident from the decline in the U.S. composite flash purchasing manager’s index (PMI) to 50.1, barely indicating expansion. The “Magnificent Seven” tech giants, which include Apple, Microsoft, Alphabet, Amazon, Tesla, Nvidia, and Meta, suffered declines, significantly impacting the market. Energy stocks, however, showed resilience, benefiting from higher oil prices due to production cuts.

The quarter was challenging for investors as the anticipation of a “soft landing” orchestrated by the Fed gave way to concerns over the sustainability of growth amidst policy tightening. Despite the downturn in equities, the labor market’s enduring strength and a cooling inflation rate provided some underlying support to the market. Looking ahead, the strategic positioning will be crucial as the market adjusts to a new phase of economic conditions and monetary policy.

Data Sources: U.S. Census Bureau, U.S. Chamber of Commerce, U.S. Department of the Treasury, U.S. Bureau of Labor Statistics, CBRE Research, CBRE Econometric Advisors, Bloomberg, Reuters, Schroders, WSJ.com, Zillow Group, Redfin, S&P Global, CNN Business, CBS News, World Economic Forum, The Conference Board & Deloitte Insights

For additional information, please contact:
Grandway Group
Attn:     Client Relations
Email:   Info@grandway.com
Tel:        +1 626-357-1200

U.S. Economy

In the second quarter of 2023, the U.S. economy did not show much evidence of a downturn, as the growth rate GDP turned out higher than anticipated according to the latest data from the Commerce Department. U.S. GDP increased at a 2.4% annualized rate in Q2, versus 2.0% in Q1.

The strong GDP growth was driven by robust consumer spending, which increased by 1.6% and accounted for 68% of all economic activity during the quarter. The solid job market and high consumer confidence supported consumer spending.

Other positive contributors to GDP growth were nonresidential fixed investment, government spending, and inventory growth. Nonresidential fixed investment reflected a rebound in business spending on equipment and software and increased intellectual property products. Government spending was boosted by federal nondefense spending and state and local spending.

One looming concern over economic growth is the housing market which slowed down noticeably due to high prices and high mortgage rates. However, home prices are showing signs of a rebound due to the lack of supply.

Federal Reserve, Inflation, and Employment

Crucially, inflation was held in check through the second quarter of 2023. Inflation, as measured by the personal consumption expenditures (PCE) price index, increased by 2.6%, down from a 4.1% rise in the first quarter and well below the Dow Jones estimate of 3.2%. This suggests that inflationary pressures have eased in the second quarter, despite the strong consumer demand and economic growth.

The Federal Reserve has been raising interest rates gradually since 2020, aiming to keep inflation near its 2% target and prevent the economy from overheating. The Fed has hiked rates 11 times since March 2022, with the most recent hike bringing the Fed’s key borrowing rate to 5.25 – 5.50%, its highest level in more than two decades. Markets expect itto be the last hike of this tightening cycle, though the Fed has not made an official decision.

The labor market has also remained resilient in the Q2, as the unemployment rate in June remained at 3.6%, the same level as last year. The total nonfarm payroll employment increased by 209,000 in June, and wage growth also picked up, rising by 5.7% year-over-year.

Overall, the second quarter GDP report shows that the U.S. economy is healthy, with solid growth, low inflation, and a robust labor market. The Fed’s monetary policy stance appears appropriate for the current economic conditions, balancing the risks of inflation and recession. The outlook for the rest of the year remains positive, barring any major shocks or disruptions from trade tensions or geopolitical events.

U.S. Stock Market

The U.S. stock market rose in Q2, mainly due to its strong performance in June. Investors seemed less worried about inflation and more confident about the U.S. economy’s ability to cope with higher interest rates. The best-performing sector in the quarter was information technology, driven by excitement over AI and its related industries, especially chipmakers. Other sectors that outperformed were consumer discretionary and communication services. Energy and utilities lagged behind the rest of the market.

Data Sources: CBRE Research, CBRE Econometric Advisors, J.P. Morgan Asset Management, Bloomberg, WSJ.com, Zillow Group, Redfin, CNN Business, CNBC, CBS News, S&P Global, The Conference Board, Deloitte Insights, Nasdaq, Bureau of Labor Statistics, U.S. Census Bureau, U.S. Chamber of Commerce, World Economic Forum, Federal Reserve Bank of St. Louis & Federal Reserve Bank of Atlanta

For additional information, please contact:
Grandway Group
Email:   Info@grandway.com
Tel:        +1 626-357-1200

U.S. Economy

The U.S. economy showed signs of resilience in the first quarter of 2023, despite the collapse of Silicon Valley Bank and the turmoil in the banking sector. According to the Atlanta Fed, real GDP is estimated to have grown at a seasonally adjusted annual rate of 1.1% in Q1 as of April 26, lower than the 2.5% projected on April 18. Consumer spending, business investment, and net exports contributed positively, while government spending and inventories dragged on growth. The outlook for the rest of the year remains uncertain, as inflation pressures, interest rate hikes, and political risks could weigh on economic activity.

Signs persist that the U.S. economy will likely fall into a mild recession in 2023. The Federal Reserve continues to raise interest rates to combat inflation, affecting growth. At the same time, the tech and finance sectors, which have been driving economic growth in recent years, are showing signs of weakness with layoffs and losses resulting from changing market conditions and regulatory pressures. The labor market remains tight but is showing signs of losing momentum. Employment is expected to moderate over the coming quarters before rebounding in early 2024.

Federal Reserve, Inflation, and Employment

The May CPI report marked the smallest year-over-year increase in inflation since April 2021, with headline CPI rising by 0.4% month-over-month and 4.9% year-over-year. The index rose due to higher costs of shelter, gas, and used cars, but lower prices for fuel, new vehicles, and groceries helped to counter-balance. Overall, headline CPI is expected to fall below 4.0% year-over-year. After raising rates in May, the Fed stopped signaling more rate hikes and said it would make decisions based on incoming data.

Labor markets remained tight but show signs of moderating. The April 2023 labor force participation rate was 0.7 percentage points below the rate in February 2020. Nonfarm payroll employment rose by 253,000, while the unemployment rate changed little at 3.4%.

At its May meeting, the FOMC hiked rates by 0.25% to 5.00%-5.25%. The Fed removed an indication that future increases are warranted and instead shifted to a language indicating that decisions will be based on incoming data. Analysts expect the Federal Reserve to hold interest rates steady at 5.25-5.50%. These data suggest we are on track for the tightening cycle to likely end in 2023.

U.S. Stock Market

The U.S. stock market was mixed and volatile in Q1 2023, with large-cap growth and defensive sectors outperforming small-cap and cyclical sectors. In the past three months, the S&P 500 Q1 EPS forecast has dropped from $54.05 to $50.63 per share, leading analysts to lower their year-over-year growth projections by 6.4% before the earnings season. One of the primary drivers behind the earnings decline continued to be shrinking margins. As inflation slowed, companies had a more challenging time passing along cost increases to consumers. This reduced their profit margins, which were at record highs in 2021 through 2022.

The debt market experienced a sharp fall in yields due to the stresses in the banking sector and the Fed’s dovish shift.  The energy market saw a rebound in crude oil prices after OPEC and its affiliates announced production cuts, while the precious metals market benefited from a weaker dollar and safe-haven demand.

Data Sources： CBRE Research, CBRE Econometric Advisors, J.P. Morgan Asset Management, CoStar Realty Information Inc., Bloomberg, WSJ.com, Zillow Group, Redfin, Bureau of Labor Statistics, & U.S. Census Bureau

For additional information, please contact:
Grandway Group
Email:   Info@grandway.com
Tel:        +1 626-357-1200