Retail Sales (Aug.)

Even though the 0.7% rise in headline retail sales in August was much better than expected, the details were far less positive, with big downward revisions to previous months, while the rise in online and grocery store spending, which contrasts with stagnant spending at bars and restaurants, suggesting that Delta fears are playing a key role.
Michael Pearce Senior US 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

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US Fed Watch

Fed still preparing ground for QE taper

We think the sharp slowdown in employment growth in August and broader signs of weakness in the incoming activity data mean the Fed will hold off formally announcing a QE taper at its September meeting. The tapering discussion will take centre stage, but we are just as interested in the updated economic projections which will include 2024 for the first time. The latter will provide a guide to how quickly Fed officials see rates returning to neutral once conditions for lift-off have been met.

15 September 2021

US Economics Update

Fed’s core measures point to sustained inflation ahead

In his Jackson Hole speech, Fed Chair Jerome Powell highlighted alternative measures of inflation, including the Dallas Fed trimmed-mean PCE and inflation ex-durable goods, which he claimed were consistent with inflation falling back close to the Fed’s 2% target. But looking at the full suite of the Fed’s alternative measures, on balance they suggest a risk that inflation remains elevated in the years ahead. What next for the ECB? We’re hosting a post-mortem after Thursday’s Governing Council meeting at 1100 ET to discuss its decision and our views on the euro-zone’s economic and inflation outlook. Register here.

9 September 2021

US Economics Update

Delta contributing to worsening labour shortages

The continued surge in job openings and elevated quits rate in July suggest that labour shortages are still intensifying, which will put further upward pressure on wages. (See Chart 1.) There is little evidence that the return to in-person schooling or the expiry of Federal UI benefits this week will do much to alleviate those shortages. Instead, virus fears appear to be a bigger factor, with the surge in infections over recent months causing more potential workers to remain on the sidelines.

8 September 2021
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