Weaker economic data set the tone for interest rate expectations in the US last week. Firstly, we had the Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI). This came in at 46.3 for March. This is the 16th time that the reading has been at this level or below since the dataset began back in 1948. On twelve of these occasions the economy has either been in or about to enter recession. Not a nailed on certainty therefore, and certainly not a cause of a recession, but an interesting indicator all the same.

In the same week we also had new orders and inventory data from the ISM. This showed that the former minus the latter has moved into negative territory, to a level which has not been seen since 2020 (Covid), 2008/9 (Global Financial Crisis) and 1970’s. Each of these periods saw a recession.

Weaker economic data meant that the market continued to price in interest rate cuts in the US before the year is out. Fed Fund Futures indicate that they could be down to the 4.00%-4.25% range by the end of 2023, implying three cuts from the current level, which is of course assuming that we don’t see any further rate hikes from here. This remains well below the expectations of the Federal Reserve governors. This would suggest, therefore, that either the latter or the market has it wrong, unless of course both are wrong and they meet somewhere in the middle. Either way, it could mean further volatility for investment markets.

We have also seen the release of the latest economic predictions from the International Monetary Fund (IMF). Within, they predict that the global economy will grow 2.8% this year, a lower rate than that seen in 2022 of 3.4%. It is advanced economies where the slowdown is forecast to be felt most, where they forecast a growth rate of only 1.3% which compares to 2.7% the previous year. The UK and Germany are forecast to see their economies contract and all except Japan see a slower growth rate.

Emerging markets and developing economies, meanwhile, are expected to see only a marginally lower rate of growth in 2023 when compared to 2022, at 3.9% and 4% respectively. Emerging and Developed Asia is, perhaps unsurprisingly, one of the key drivers here, where a pick up is expected in the rate of growth from last year. This is also the case for China, with the growth rate expected to pick up strongly as the economy reopens.

This leads the IMF to suggest that there are tentative signs that the global economy could achieve a soft landing in 2023, particularly with inflation coming down. Much however will depend on the path of monetary policy. They believe, however, that risks are skewed to the downside rather than upside, something to watch, therefore.

Inflation pressures still remain evident. For parents, however, inflation appears to have been an ever present when it comes to the tooth fairy. In a poll recently conducted by Delta Dental in the US, the average payout for a lost tooth has risen to a staggering $6.23. This compares to around $4 in 2020 but is way above the $2 average being paid in 2005. Not quite sure this is a metric which the US Federal Reserve will be following closely, but I am sure the under paying parents will be keeping the results of this survey hidden under their pillows!

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