Unfolding events in the Middle East continue to be the primary driver behind market movements due to their impact on global energy supply. While a cease fire is better than no cease fire, the US and Iran are still very far apart when it comes to negotiating a permanent end to the hostilities. The markets are sensitive to every sign of hope, but there remains good reason to be skeptical the two sides can come together in the next week or two.
Meanwhile, on the home front, economic data continues to show a very resilient US economy. The March jobs report showed that 178,000 jobs were created last month vs. a forecasted gain of just 59,000 jobs AND the unemployment rate fell to 4.3%. This was welcome news after February’s loss of 133,000 jobs.
Additionally, estimates for 1st quarter US economic growth (GDP) are somewhere between 1.3% (Atlanta Fed) and 2.4% (New York Fed). Economic growth for the remainder of the year is expected to get a boost from tax refunds. According to the Tax Foundation, recent data shows average refunds are up approximately 11% over last year.
However, the stimulative effect of larger refunds will be blunted to some degree by higher energy costs now, and possibly higher overall prices later in the year. The annual inflation rate rose to 3.3% in March, pushed by a 10.9% surge in energy costs. When we strip out food and energy (called Core CPI), the inflation rate remained a relatively tame 2.6%.
If energy prices remain elevated, or move even higher from here, those costs will ripple through the system and drag the prices of many other goods and services higher. While larger tax refunds can help consumers deal with higher prices, the refunds wouldn’t give the economy the boost currently expected and already priced into the markets.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
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