Summary
United States: Labor Costs Complicate the Ride Back to 2% Inflation
- The U.S. economy expanded at a weaker-than-expected pace in Q1; real GDP grew at a 1.1% annualized rate. The ECI increased a hotter-than-expected 1.2% in Q1, suggesting compensation costs are not cooling as much as the average hourly earnings data indicate.
- Next week: Construction Spending (Mon), ISM PMIs (Mon & Wed), Employment (Fri)
International: Eurozone Avoids Recession, Bank of Japan Keeps Policy Unchanged
- The Eurozone’s Q1 GDP data revealed that the economy narrowly avoided recession to start the year, with the economy expanding 0.1% quarter-over-quarter in Q1 after contracting 0.1% in Q4-2022. Elsewhere, the Bank of Japan (BoJ) held its first monetary policy meeting under Governor Ueda and decided unanimously to keep policy settings unchanged. While Ueda’s commentary leaned dovish, he did not rule out the possibility of an eventual shift in policy.
- Next week: China PMIs (Sun), Reserve Bank of Australia (Tue), Eurozone CPI & European Central Bank (Tue/Thu)
Credit Market Insights: Corporate Bond Spreads Hanging In
- Investment grade bond spreads began widening in 2022 as monetary policy tightening ramped up and the probability of a recession began to rise. More recent, spreads again widened in the wake of the two regional bank failures that occurred in March. However, spreads have retraced about half of that widening since mid-March and are again back to roughly the same level they were a year ago.
Topic of the Week: Up Close on SNAP
- This week, House Republicans passed a bill that would require substantive spending cuts in exchange for raising the federal debt ceiling. Included within the bill was a proposed change to the eligibility guidelines for the Supplemental Nutrition Assistance Program. With decreasing nominal benefits and still rising food prices, the real benefit received by households could continue to decline and have broader implications for the economy.
 held its first monetary policy meeting under Governor Ueda and decided unanimously to keep policy settings unchanged. While Ueda's commentary leaned dovish, he did not rule out the possibility of an eventual shift in policy.){kind=link}