Unexpected geopolitical factors—such as the war between Russia and Ukraine—have an impact on the world, including the U.S. economy. However, we can use data points to navigate through the uncertainty. Brian Henderson, chief investment officer at BOK Financial®, weighs in on the 10 figures to watch through the remainder of the year, in no particular order:
1. Monthly inflation data: "The number one thing to watch is inflation," Henderson said. Keep an eye out for the U.S. Bureau of Economic Analysis's Personal Consumption Expenditures (PCE) Index, which measures changes in the prices of goods and services purchased by consumers in the United States. The Federal Reserve's preferred inflation measure is the Core PCE which excludes food and energy prices.
2. Retail sales: Another important indicator to watch is the U.S. Retail Sales Report, which measures retail goods and services sales. "The U.S.'s overall economic activity will be very key to watch. The Fed wants to slow the economy down, but they don't want to put us in a recession," he explained.
3. Job market data: Along with retail sales, the strength of the job market will be a good indicator of how well the economy is holding up to higher interest rates, according to Henderson. In addition to the U.S. Bureau of Labor Statistics' monthly jobs report, which shows the unemployment rate, the Job Openings and Labor Turnover Survey (JOLTS) comes out once a month and reports the number of job openings.
4. Durable goods prices: Keep an eye out for any drops in durable goods prices, Henderson said. Durable goods are items that generally last more than three years, such as cars, furniture and home appliances. If consumers spend less on these items, that would bring prices down and alleviate some inflationary pressures, he explained. "It also would allow the Federal Reserve to start slowing down the pace of rate hikes," he noted.
5. Consumer debt: Even though consumer debt climbed by $52.4 billion (an annual increase of 14%) in March, this figure isn't yet a warning sign, Henderson said. However, it is one to watch, he added.
6. S&P earnings releases in July: "These will be pretty key. The question will be whether more and more companies beyond just retailers are experiencing significant margin pressure from higher labor costs, transportation costs and commodity prices," Henderson said. Plus, declining consumer spending will impact some companies' revenue.
7. Long-term inflation expectations: One way to determine long-term inflation expectations is by calculating the difference between the five-year Treasury rate and the five-year Treasury Inflation-Protected Securities (TIPS) rate. Right now, this figure is below 3%, Henderson said. "If longer-term inflation expectations continue to increase to new highs, then the Fed will move more aggressively," he said.
8. High-yield credit spreads: These figures are the difference in the yield between high-yield bonds—which tend to be riskier investments and thus pay higher interest—and a benchmark bond measure, such as the less risky investment-grade bonds. "These spreads already have widened quite a bit because of concerns that the economy is going to slow down. If they continue to move wider, that could be a tell-tale sign that the economy is slowing down more than what the Fed would like and increase the odds of recession," Henderson explained.
9. Wages: Rising wages are a major part of inflation and impact companies' earnings, Henderson said. In turn, wage inflation could lead to layoffs and hiring freezes as companies look to cut costs, he said. Plus, it's worth noting that, even though wages are going up, real wages (wages adjusted for inflation) are going down. You can keep an eye on wages in the U.S. Bureau of Labor Statistics' monthly jobs report.
10. Rent prices: Meanwhile, rents continue to rise, a figure that you can track using Rent.com research. "Rent increases have remained firm due to lagged effects from the nearly 20% rise in national home prices, low residential vacancy rates, the firm job market and the lack of supply of homes," Henderson explained.
Looking for more insight into what lies ahead through the rest of the year? Stay tuned for BOK Financial's Mid-Year Outlook due out later in June.