Ear to the Ground

03 May 2024

Very little economic data from the UK this week to attract the attention.  Perhaps the most headline grabbing release was the Nationwide Housing Prices survey to April which showed month on month values fell 0.4%, whereas the consensus forecast had been for a rise of 0.2%.  Affordability challenges were blamed, with a recent survey revealing that 49% of prospective first time buyers have postponed their plans to purchase over the last year.  Not enough excitement however to move markets in any real fashion.

Instead, all eyes were focussed on the US.  Here there was a plethora of data for investors and economists to get their teeth into.  After last week’s weaker than expected first quarter economic growth data it was perhaps unsurprising to see a key manufacturing index slip back into a state of contraction in April.  The ISM Manufacturing Purchasing Managers Index fell back below the key 50 level, after a brief visit above in March.  In particular, there was a move lower in new orders across numerous sectors/industries. 

It was not just manufacturing where we saw contraction, however, with the services sector also slipping into contraction.  The ISM Services Purchasing Managers Index to April had been expected to remain above the 50 level, which would have signified expansion.  Instead the figure came in below at 49.4.  This is the first time we have seen contraction here since the end of 2022.  This, coinciding with the contraction in manufacturing, is perhaps a sign that higher for longer interest rates are slowly but surely taking their toll on economic growth.

For now, however, it appears that the US Federal Reserve are remaining focussed on defeating inflation.  At their meeting this week they took the decision to keep the federal funds rate unchanged at 5.25%-5.50%, for the sixth consecutive time.  Voting members highlighted that there had been a lack of further progress in bringing inflation back towards the 2% target level, remaining stubbornly in the 3%+ area.  Back in December it was predicted that we would have seen at least two cuts by now.  The market is now coming to grips that we may see a maximum of only two this year. 

The central bank meets again in June but a cut here now also seems to be in doubt.  Given the weaker economic data seen both last week and this, July could prove a possibility if we also start to see inflationary pressures subside.   But, perhaps September could prove the more likely candidate.  It would be unlikely to see movement at the November meeting given that we will be in the midst of the US Presidential Election.  The Federal Reserve will be keen to show no political bias.  Which then leaves the December meeting before 2024 is brought to a close.  The whole world appears to be trying to work out, can we even say guess, when the first interest rate cut will come.  That goes for Jerome Powell and friends too!