US Chart Book

US Chart Book

Data provide mixed signals on Delta impact

The latest data provide mixed signals on the impact that the Delta variant is having on the economy. The high frequency indicators for high contact services suggest that activity levelled out in August and weakened a little in early September. Last month’s retail sales report also revealed that spending on food services was broadly flat, but control group sales nevertheless rebounded strongly, as households refocused their spending online and in favour of goods consumption. Elsewhere, leisure and hospitality employment was unchanged in August which, because that sector had been such an important contributor to the strength of the gains in earlier months, helps to explain why payroll employment increased by little more than 200,000 last month. Finally, even though activity only stagnated, the prices for some high contact service activity like hotels and air fares fell quite sharply. The good news is that, with Delta variant infections having now peaked, we should see some rebound in affected activity and employment soon, although the downside is that could contribute to a renewed pick-up in inflation linked to reopening.

21 September 2021

US Chart Book

Growth slowing even before potential Delta drag

The 1.1% m/m fall in retail sales last month illustrates the worsening drag from the sharp slowdown in real income growth, as earlier fiscal support fades and surging prices erode purchasing power. This suggests real consumption growth could be even weaker in the third quarter than the 3% annualised pace we had pencilled in. Moreover, the details suggest that the July retail sales data came too early to capture much impact from the continued rapid spread of the Delta coronavirus variant, which contributed to a renewed plunge in consumer confidence in early August. The upshot is that, although the July payrolls figures suggested that labour shortages won’t be as big a drag as we had previously feared, economic growth still looks likely to slow more sharply over the second half of the year than most anticipate.

18 August 2021

US Chart Book

Delta variant adds to consumption headwinds

Although 60% of American adults are now fully vaccinated, the uptick in coronavirus infections linked to the Delta variant has been accompanied by a slight rebound in fears over the spread of the virus. While most states appear unlikely to reimpose restrictions on activity, the upturn in infections still poses a downside risk to the economy over the coming months if it prompts people to voluntarily stay away from in-person services. This comes at a time when real consumption growth already appears to be faltering, as higher prices reduce purchasing power. Despite the solid rise in retail sales in June, the 0.9% rise in prices suggests that will translate to a small fall in real consumption for the second month running. The upshot is that real economic growth is slowing more sharply than we had originally anticipated, even before the potential impact of the new Delta variant.

20 July 2021
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US Chart Book

‘Transitory’ inflation claims look less convincing

The further jump in CPI inflation in May was again driven by a handful of categories most affected by the lifting of pandemic restrictions. But there were also clear signs that inflationary pressures are becoming more widespread, with rent of shelter inflation in the early stages of a cyclical rebound and the jump in food away from home prices a sign that severe labour shortages, and the resulting upward pressure on wages, are starting to feed through. Those trends are much less likely to be transitory, particularly when inflation expectations have continued to trend higher. With the economy still a long way from the Fed’s full employment goal we doubt that officials will be in any rush to bring forward plans for tightening policy. But we suspect the Fed will eventually be forced to admit that higher core inflation will prove more persistent they initially believed.

US Chart Book

Supply shortages getting worse

The strength of demand coupled with supply constraints have made shortages of many goods even worse, with the inventory to sales ratio falling to a record low in March. The surge in job openings and share of employers saying they are struggling to fill those vacancies reveals that shortages are increasingly affecting the labour market too. While most of the surge in consumer prices in April specifically can be traced to sectors affected by shortages and reopening demand, there are signs of more lasting inflationary pressure beginning to mount in the background. With wage growth and inflation expectations also heating up, we are increasingly confident in our view that what started out as a largely transitory rise in inflation will become entrenched over the next few years.

18 May 2021

US Chart Book

Supply struggling to keep up with red-hot demand

The latest round of stimulus cheques and the easing of restrictions are driving a renewed resurgence in demand, with retail sales jumping by nearly 10% in March and the regional manufacturing surveys rising to their highest level since the 1970s. Nevertheless, there are signs that supply in a number of sectors is struggling to keep up, with mounting evidence that this is likely to put significant upward pressure on prices. Some of that upward pressure will eventually fade, as temporary supply bottlenecks are worked through and inventories are rebuilt. But with wage pressures already building and inflation expectations trending higher, we expect the rebound in inflation now underway to prove more persistent than the Fed anticipates.

19 April 2021

US Chart Book

Core inflation to rise above 2% and stay there

Base effects will temporarily drive headline and core CPI inflation up sharply over the coming months but, with underlying price pressures also starting to mount, we expect core CPI inflation to remain elevated over the next couple of years.

17 March 2021

US Chart Book

Strong start sets the tone for the rest of 2021

The economy has started 2021 on a stronger footing than we anticipated. The 5.3% surge in retail sales last month underlined just how quickly stimulus cheques fed through to stronger spending on big-ticket items, while loosening virus restrictions are feeding through to a recovery in a range of services spending. With Congress likely to pass another fiscal stimulus worth at least $1 trillion in the coming weeks and the vaccination program still gathering momentum, we are increasingly confident in our above-consensus forecast for GDP growth of 6.5% this year.

19 February 2021
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