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.
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

US Economics Weekly

Fed officials split; Biden backs infrastructure deal

Fed Chair Jerome Powell stuck to the script in his congressional appearance earlier this week, arguing it was “very, very, unlikely” that the US would experience a return to the high inflation of the 1970s. Elsewhere, President Joe Biden gave his support to a bipartisan infrastructure deal worth $1trn then promptly threatened to veto it too.

25 June 2021

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.

16 June 2021

US Economics Weekly

Democrats’ spending plans hit by reality check

The Senate Parliamentarian delivered some bad news to the Democrats this week – ruling that they could introduce another reconciliation to the current budget, which would allow them to pass more of President Joe Biden’s spending plans measures with a filibuster-proof simple majority. But she also ruled that any new reconciliation would first have to be approved by the Senate Budget Committee and, since that is split evenly 11-11, the Democrats are left in the hopeless position of trying to convince one of those 11 Republicans to switch sides.

4 June 2021
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