Signs of economic expansion emerge while Powell holds steady

Economic outlook

Initial jobless claims released last week came in at their lowest level of the pandemic, falling to 684,000 from 781,000 the week prior. This resulted in a four-week average jobless claims number of 736,000, also a pandemic low. Household savings totaled $3.9 trillion at the start of 2021, up from $1.4 trillion in February 2020. This, alongside an updated vaccination goal from the Biden administration of 200 million shots within the first 100 days in office, continued to support the narrative that America is in the early stages of an economic expansion cycle.

Federal Reserve Chairman, Jerome Powell, last week commented on that sentiment while giving Senate testimony stating, “It seems that rates have responded to news about vaccination and ultimately about growth, and that has been an orderly process.” Mr. Powell also said he “would be concerned if it were not an orderly process or if conditions were to tighten to the point where they might threaten our recovery.” But he reiterated the view that recent increases have come from “extraordinarily low levels…back up toward a level that we’re more likely to see.”

This statement continues to echo the overall sentiment from the Fed that while the economy is poised for a strong recovery, reinvigorating the labor market will take time.

Certain areas of the economy have begun feeling the strain of increasing consumer demand, with manufacturers reporting lengthening delivery times for raw materials and an increase in input prices. This resulted in output rising at the slowest pace in five months, while new orders rose at their fastest pace in almost seven years. The key question on consumers’ minds is if this supply squeeze will trigger enough price pressure to prompt Fed action. Currently, the Fed has stated its intention is to hold short-term interest rates at the current levels through 2023 while Treasury yields continue an upward trend. The steepening of the yield curve, along with volatility in long-term rates, is prompting many corporates to evaluate pre-issuance hedging alternatives.

(Related insight: Register for the webinar, “Pre-issuance Hedging: Practitioners Share Insights on Why and How”)

Commodities

Although efforts to free the container ship are progressing, the Suez Canal remains closed, with shipping experts warning the channel could remain blocked for days. Almost 10% of total seaborne oil trade and 8% of global liquefied natural gas (LNG) trade passes through the Suez Canal, according to data from the U.S. Energy Information Administration. Oil futures rose temporarily on news of the blockage, following prior losses earlier last week from concerns over rising European COVID-19 cases.

(Related insight: Read, “Using commodity collars to manage market volatility”)

Week Ahead

The U.S. Bureau of Labor Statistics will release nonfarm payrolls on Friday, with many Americans expecting to receive another round of stimulus payments. Market participants will continue monitoring the economic recovery for signs of excess inflation while keeping an eye on Fed activity.