THE MONTH IN BRIEF
In March, stocks faced another significant challenge. The Trump administration’s sudden plan to institute tariffs on imports sent a shudder through the bulls. All three major Wall Street benchmarks fell more than 2.5% during the month as investors around the world considered the prospect of trade wars involving American, Chinese, and European products. The Federal Reserve raised the target range for the federal funds rate by another quarter point; mortgage rates were little changed for the month, and existing home sales improved. In Europe, leaders agreed on how the Brexit would unfold. The value of bitcoin declined, while gasoline and oil futures rallied. All in all, it was an eventful and volatile month for the economy and the markets.1
DOMESTIC ECONOMIC HEALTH
As March began, President Trump announced that the U.S. would soon impose tariffs of 25% on imported steel and 10% on imported aluminum. Those excise taxes were authorized before the month ended; some nations (including Canada and Mexico) received short-term exemptions from them. Another set of tariffs, about $60 billion annually, were envisioned for various Chinese imports. This last action prompted a direct reaction in China (see “Global Economic Health” below).2,3
The nation’s central bank lifted the benchmark interest rate slightly. Making its sixth, quarter-point hike in less than a year and a half, the Federal Reserve increased the target range on the federal funds rate to 1.50-1.75%. The dot-plot representing the consensus forecast of Fed policymakers still showed a total of three rate hikes for 2018. (Three hikes are also projected for 2019.)4
While investors fretted over possible economic backlash from tariffs, fundamental economic indicators largely delivered good news. Non-farm payrolls swelled with 313,000 net new hires in February, according to the Department of Labor; the headline unemployment and U-6 unemployment rates were respectively unchanged at 4.1% and 8.2%.5
Manufacturing output improved 1.2% in February, while industrial output was up 1.1% (and 4.4% year-over-year). The Institute for Supply Management’s manufacturing purchasing manager index climbed to 60.8 in February, rising 1.7 points. ISM’s service sector PMI declined 0.4 points in February to a still-impressive 59.5.5,6
Household spending increased by 0.2% in February according to the Department of Commerce, with household incomes up 0.4%. The two most-respected consumer confidence indices were still at lofty heights. The University of Michigan’s gauge went from 99.7 at the end of February to a preliminary March mark of 102.0, then a final March reading of 101.4; the Conference Board’s barometer declined to 127.7 from 130.0.5
As for inflation pressure, it moderated slightly: the annualized rise of the Consumer Price Index ticked up to 2.2% in February, with the annualized core CPI gain remaining at 1.8%. Producer prices, though, were up 2.8% year-over-year through February.5
GLOBAL ECONOMIC HEALTH
China followed America’s declaration of tariffs on Chinese imports
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