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.
Paul Ashworth Chief North America Economist
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US Data Response

Industrial Production (Sep.)

The 1.3% fall in industrial production in September partly reflects a temporary hit to mining and chemicals output from Hurricane Ida and a drop in cooling demand, as the weather returned to seasonal norms. That said, most of the 0.7% drop in manufacturing output is due to worsening shortages, particularly of semiconductors, which will hold back production for some considerable time.

18 October 2021

US Economic Outlook

Whiff of stagflation gets stronger

The whiff of stagflation is getting stronger as shortages worsen, leading to surging prices and weaker real GDP growth. Shortages of goods and intermediate inputs will eventually ease, although not for at least six to 12 months. But the drop in the labour force appears to be more permanent, which suggests the pandemic could have a long-term scarring effect on potential GDP after all. We now expect GDP growth to be 2.7% in 2022 and 2.0% in 2023 and we expect CPI inflation to be around 3.0% in both years. We assume the Fed will focus on the weakness in the real economy rather than the sustained overshoot in inflation, however, and are forecasting only two interest rate hikes in 2023.

18 October 2021

US Economics Weekly

Labour force exodus shows no sign of reversing

This week brought more news that acute labour shortages and the resulting surge in wages are rapidly feeding through into the most cyclically sensitive components of the consumer price index.

15 October 2021

More from Paul Ashworth

Canada Economics Weekly

Exports heating up as housing cools

There was more evidence that the housing market is cooling this week, with home sales slipping to 12-month lows in seasonally adjusted terms in both Toronto and Vancouver. The good news, however, is that although the housing boom is going into reverse, there are signs of other GDP components stepping up to the plate – with exports soaring in June.

6 August 2021

Canada Data Response

Labour Force Survey (July)

The 94,000 increase in LFS employment in July was something of a disappointment given the lifting of coronavirus restrictions at the start of the month in many provinces, but the solid 1.3% m/m gain in total hours worked was more encouraging. With employment in accommodation & food services still almost 20% below its pre-pandemic peak and indoor dining only reopening during the July survey week, there is plenty of scope for even stronger gains in employment over the coming months.

6 August 2021

Canada Data Response

International Trade (June)

The merchandise trade position returned to surplus in June thanks to a massive 8.7% m/m surge in exports, which suggests that second-quarter GDP growth was even stronger than the 2.5% annualised we were expecting.

5 August 2021
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