Don’t have time to read four different inflation reports each month, along with keeping track of the labor market, yield curve and the latest word from central banks worldwide? Don’t worry, you don’t have to.
Each day, the BOK Financial investment management team keeps an eye on domestic and global economic indicators. We evaluate what will impact you and your money most and break it down into easy-to-understand, relevant commentary that you can find online in The Statement or delivered directly to your email inbox.
And so, as we go into the year ahead, this is some of the data that we’ll be watching closely:
- Monthly inflation reports: When most people think of inflation data, they think of the consumer price index, or CPI. Although that figure is undoubtedly important, it’s not the only inflation data point that we watch. Rather, we also pay attention to the Producer Price Index (PPI), Personal Consumption Expenditures Price Index (PCE) and the price components of Institute of Supply Management (ISM) data. All of these reports are freely available online, if you also would like to read them. However, when looking at any of these figures, “keep in mind that you’re monitoring month-to-month increases, but one month doesn’t make a trend,” explained BOK Financial® Chief Investment Officer Brian Henderson.
- Labor market reports: The cost of services such as air travel and eating at restaurants is highly dependent on the cost of wages, so keeping track of labor market data helps us keep an eye on where inflation likely is headed. Steve Wyett, chief investment strategist, noted, “The Federal Reserve has highlighted an overheated labor market as a risk for longer lasting inflation. It is a bit uncomfortable but the goal for the Fed is to reduce job openings and even see the unemployment rate go up a bit to avoid the risk of inflation becoming entrenched.” Some specific figures we watch are the month-to-month changes in payroll average hourly earnings, the unemployment rate, and the number of job openings.
- The yield curve: The yield curve reflects the returns that are available on U.S. Treasury securities of different maturities, and we monitor it closely. An inverted curve is sometimes viewed as an indicator of recession, which is why the term has been in the news a lot lately. However, while the yield curve is important, “it’s not the be-all or end-all,” Henderson noted. “Just because the curve is inverted doesn’t mean that we’re going to fall into a recession. Yield curves represent forward expectations on where the bond market thinks interest rates will be in the future,” he explained. “Although inverted yield curves typically precede recessions, there isn’t anything mechanical about it, and the difference in time lags between inverted curves and timing of recession is very uncertain.”
- Corporate profits: If corporate profits start to fall in 2023, that could lead to layoffs—such as those that have happened already at tech companies such as Twitter, Stripe, Meta and Amazon. Plus, corporate profits are one gauge of the health of the economy, which is why we watch them so closely. “Pressure on earnings and margins could lead to a weakening employment picture, if companies continue to lay off employees to protect margins. Additionally, earnings are a key factor when valuing equites and bonds,” explained Matt Stephani, president of Cavanal Hill Investment Management, Inc., a subsidiary of BOK Financial Corporation.
- Foreign monetary policy: When evaluating the global economy, we don’t focus on specific figures as much as we do monetary policy. For instance, the UK and Europe either seem to be in a recession now or headed into one very rapidly. Consequently, we’re paying close attention to what the Bank of England and European Central Bank are doing. If they don’t hike rates enough for the longer term, the consequences will be those currencies depreciating even further. We’re also paying attention to China’s zero-COVID policy and Bank of Japan’s monetary policy. “We’re following the latter very closely because, although inflation in Japan is trending higher, its central bank has been keeping interest rates negative,” Henderson said.
Finally, when looking at any economic data, we keep in mind that no single number is a crystal ball into the future. But we watch all of these things and stay on top of them to help you and your advisor navigate the uncertain economic environment.
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