Investors continue to debate the current direction of inflation and what recent "hot" data means for upcoming Federal Reserve policy moves.

Wall Street today is highly anxious to ISM Services Index for February with consensus expecting a minor pullback in both activity and the "prices paid" component. Higher-than-expected reads could deliver a blow to the bulls following a series of reports that indicate few signs of a slowing US economy.

The January jobs report was "hot", as were the Consumer and Producer Price Indexes, as well as one of the Fed's favorite inflation gauges, the PCE Prices Index. Economists are divided as to whether the strong January data was a fluke and most are looking to February data to reveal how things are currently trending.

So far, February manufacturing data did show a slowdown in activity but a second consecutive month of rising costs. The services data today is of particular interest because the Fed has continuously pointed to its extreme labor shortage and resulting wage gains as a key inflationary force. The services sector also comprised the largest swath of US economic activity.

The Fed’s semi-annual monetary report to Congress will also be released this morning, which could cause some ripples in markets depending on the details. Fed Chair Jerome Powell's testimony before Congress doesn't start until next week, though, and what he says and how he delivers it will carry much more weight than the report today.

Powell appears before the Senate Banking Committee on Tuesday and the House Financial Services Committee Wednesday. Next week also brings the February jobs report, due on Friday, March 10, which should provide more clarity on the strength of the US job market.

Fed governor Christopher Waller yesterday said he would see no need to raise the Fed's target rate any higher than the current plan of 5.1% to 5.4% this year if upcoming jobs reports show growth slowed to the levels of late last year (around +260,000 per month in December) and "disinflation" returns.

Waller also noted that falling rent prices that began last summer should begin showing up in the data "in coming months" which will act as another disinflationary force.

Other economic data highlights next week include Factory Orders on Monday; Wholesale Inventories and Consumer Credit on Tuesday; and ADP's Employment Change, the US Trade Balance, the Job Openings and Labor Turnover Survey, and the Fed's Beige Book on Wednesday.

Earnings next week are very light but there are still a few US companies of interest, including Casey's General Stores, CrowdStrike, and DICK'S Sporting Goods on Tuesday; Campbell Soup and Prudential on Wednesday; and BJ's Wholesale, The Gap, Oracle, Toro, and Ulta Beauty on Thursday.

No Signs of Slower Spending... Ford Motor’s Sales increased by +20% - Ford Motor’s February sales increased by more than 20% from subdued results a year earlier. The Detroit automaker Thursday reported February sales of 157,606 vehicles, a +7.7% increase from January. Sales of Ford’s F-Series pickups increased +22% last month compared with a year earlier, including a spike in sales of its electric F-150 Lightning Source CNBC

Does America Have Enough Electricians to Go Green? Electricians, the essential workers in the transition to renewable energy, are in increasingly short supply. They are needed to install the electric-car chargers, heat pumps and other gear deemed essential to address climate change. Currently, electricians say they are booked several months out and struggling to find enough workers to keep up with demand. Many are raising wages and prices and worried that they won’t be able to keep up as government climate incentives kick in. The scarcity is part of a nationwide labor shortage and is most acute in the Northeast and California, where demand for green-energy products is highest, in part due to state incentives. Some economists expect the pinch to spread across the country as incentives from the new federal law known as the Inflation Reduction Act kick in. The current total of more than 700,000 electricians in the U.S. is expected to grow about +7% over the next decade, slightly faster than the nationwide average of +5%, according to the Bureau of Labor Statistics. The shift to renewable energy and the need to update electrical systems is expected to drive that growth. Electricians and Electrical Engineers might be good ones for the kids to consider. Source WSJ

Jacques Cousteau’s Grandson is Building a Network of Ocean Floor Research Stations: Fabien Cousteau has a vision for how humans can live and work in the ocean. He imagines that long-term stays under the waves could be enabled through the construction of underwater habitats, which would look and feel like houses, as opposed to just sealed, submarine-like bubbles. The project, called Proteus, would be a marine analog to the International Space Station, and would primarily accommodate aquanauts, the equivalent of an astronaut in the ocean. It’s an idea that has been bubbling for some time now but it could start taking shape relatively soon. Proteus Ocean Group, a private company that would operate and run Proteus, has recently signed an engineering, procurement, and construction contract with a firm that has expertise in creating hyperbaric and pressure vessels in the ocean environment. The first unit will be installed off of Curaçao, an island north of Venezuela, in a marine protected area around 60 feet deep. The team is looking into additional locations across Europe and the US for future stations with their goal being to create a network of them and they’ve already completed 3D mapping of the seafloor around the general area where Proteus will be located. Source Popular Science

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Consumer-Goods Makers Find They Can’t Raise Prices Much More: Companies ranging from Ben & Jerry’s owner Unilever Plc to Lysol maker Reckitt Benckiser Group Plc have reported declining sales volumes in recent months, with many consumers turning to cheaper private-label goods amid a severe cost-of-living crisis. The problem is most severe in Europe, where supermarket chains are pushing back against lifting prices. The waning pricing power of consumer-goods makers contrasts with carmakers and airlines, which have been able to push prices up due to limited supply and pent-up demand. There are some categories which enjoy more resilient demand — notably the petcare units of Nestle and Colgate, which managed to increase both pricing and unit sales. Yet gross margins at most consumer-goods makers are below 2021 levels, making it likely that they will want to recover some of the profitability they have lost. Source Bloomberg

Home Price Trends Across the Country: Updated data on home prices across the country came out earlier this week when the newest monthly S&P CoreLogic Case Shiller indices were published. This data is lagged by two months, but it gives us a look at where home prices ended the year in 2022. Below is a table from Bespoke Investment Group highlighting the month-over-month (m/m) and year-over-year (y/y) percentage change in home prices across the 20 cities tracked by Case Shiller. It also includes the national and composite 10-city and 20-city readings. The second chart shows the change in home prices versus the peak in mid-2022. Home prices fell sharply from November 2022 to December 2022, with the national index down 0.81% and 11 of 20 cities down more than 1% sequentially. New York and Miami saw the smallest m/m declines with drops of less than 0.3%. Looking at y/y price changes, while the national index still showed an increase of 5.76% from December 2021 to December 2022, two cities have now seen prices dip into the red on a y/y basis. Seattle home prices fell 1.78% for the full year 2022, while San Francisco prices fell even more at -4.19%. Meanwhile, the composite indices are only down 4-6% from their mid-2022 peaks, but we've seen prices really take a hit out west with cities like San Diego, Seattle, and San Francisco already down double-digit percentage points from their highs. Source Bespoke

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