Rebound in production has much further to run

The recovery in manufacturing output has been relatively muted up to this point but, with goods consumption surging and, as a result, inventories now looking very lean for this stage in the cycle, we expect manufacturing output to climb back to its pre-pandemic level over the next few months.
Michael Pearce Senior US Economist
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US Economics Weekly

Fed shifting back to risk management mode

The upward revisions to the “dot plot” at this week’s FOMC meeting were hard to square with Fed officials’ continued belief that higher inflation will prove mostly transitory. Nevertheless, we also now expect two 25bp rate hikes in 2023, one more than we had previously pencilled in.

18 June 2021

US Economics Update

Inflation “transitory”, but Fed now projects rate hikes

The Fed continued to stick to its view that the surge in inflation "largely" reflects "transitory factors", but officials revised their inflation projections up significantly for this year and the median projection now shows two 25bp interest rate hikes in 2023. In his press conference, Chair Jerome Powell argued that the Fed was still “a ways off” from achieving the substantial further progress toward its dual mandate goals that would trigger a tapering of its monthly asset purchases.

16 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

More from Michael Pearce

US Data Response

ISM Manufacturing Index (May)

While the headline ISM manufacturing index edged up to 61.2 in May, from 60.7, the main takeaway from the release was that shortages of workers, and not just raw materials, now appear to be playing a key role in holding back production and pushing up prices.

1 June 2021

US Economics Weekly

Fed remaining dovish as supply-side constraints mount

In a relatively quiet week, the few data releases we did get added to signs that shortages are pushing up prices further and restraining the pace of economic recovery.

21 May 2021

US Economics Update

How big a risk is the slowdown in vaccinations?

The sharp drop in demand for vaccines in recent weeks is a risk to our assumption that the rollout reaches critical mass over the coming months. That could mean infections and hospitalisations remain elevated, but we doubt that would be a big drag on the economic recovery.

4 May 2021
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