With improved inflation data and softening in real indicators, markets are capping expectations for the US Federal Reserve’s rate transmission. His optimism could prove spot on. But at the moment it is premature and uncertainty still abounds. Fed Chairman Jerome Powell may have to rein in markets at the January 31-February 1 meeting.
The Fed is likely to slow its rate hikes from 50 to 25 basis points. Many market participants are now betting that it will not raise the fed funds rate above 5% and will cut rates in the second half, in contrast to the latest dot plot. Although this is not clear. They are influenced by data showing that inflation has not only peaked, but is falling more sharply than expected.
However, growth prospects are uncertain. Weakening demand is seen in some circles as yet another reason to believe that the Federal Reserve may become more accommodative than previously thought. But analysts disagree on whether the US will experience a recession, let alone when it might start, versus a slowdown or stagflation. Despite the layoffs, especially in the technology sector, labor markets continue to look strong and unemployment well below its natural rate.
At least, it was until now, since the industrial sector, the one that employs a large part of the North American labor force, was holding on. But start a verse with some symptoms that could worry Powell and the rest of the Fed. An example would be the workforce adjustment announced by 3M, a US industrial conglomerate that belongs to the manufacturing sector, of about 2,500 workers.
The outlook and quarterly results weigh even more on the company. “3M had recently downgraded investor and public opinion expectations to some extent, but weak fourth-quarter results and softer 2023 guidance (weak environment) weighed on stocks in the near term.” , Citi analysts wrote in a note.
According to 3M, the slowdown in demand has extended to the current one, due to cuts in consumer discretionary spending and the sharp reduction of industrial inventories, especially in Asia. “Three weeks into January, we see a continued slowdown in organic sales volume at the start of the year,” said the company’s chief financial officer, Monish Patolawala.
The company, which has been battling rising labor and energy costs, said it would continue to adjust its manufacturing levels and maintain spending discipline until volumes recover. 3M forecasts first-quarter adjusted sales of $7.2-7.6 billion, down 10-15% year-over-year, below analyst expectations of $8.34-billion, according to data. by Refinitiv.
And it’s not just here. Template adjustments such as the one announced by Goldman Sachs, of 3,200 workers, send a warning to the market: prepare for a stronger economic decline than expected by the analyst media at some point in 2023.
looking wisely
The adjustment of templates in sectors beyond technology could certainly worry the conclave of the US monetary institution. Since 2020, jobs in the manufacturing sector have grown 2.1% to date, according to the United States Bureau of Labor Statistics, although in the last month, growth has been 0.1%.
A gradual slowdown in hiring is beginning to be observed, which may be the prelude to more widespread layoffs. More and more companies are joining the bandwagon of personnel adjustments, in order to provision and have more margin in the event of an economic recession resulting from the reduction in consumer demand as a result of the increase in prices of money.
Financial conditions were endured with difficulty between June and mid-October 2022, although there has been significant easing since then. Shares rallied in the first half of January, before easing back a bit. Bond yields have fallen. The dollar is down. “Given that the Fed constantly repeats that monetary policy works through its impact on financial conditions, it is not likely that the magnitude of the easing is consistent with the desired orientation of the policy,” they point out from Atlantic Capital.
