Dovish Powell; economy emerging from hibernation

With fiscal negotiations taking a backseat to the impeachment trial in the Senate, a dovish Powell speech took the limelight this week, together with signs that virus restrictions will continue to be lifted.
Michael Pearce Senior US Economist
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US Economics Update

Labour market slack falling to generational lows

The rebound in the job openings rate close to a record high in October means that the number of unemployed Americans per job opening fell to its lowest level since the early 1950s. That underlines the tightness of labour market conditions and suggests recent rapid wage gains will continue.

8 December 2021

US Fed Watch

Fed pivot will take rates to more than 1.5% in 2023

In sharp contrast to the surprisingly dovish November meeting, we expect Fed officials will use their December meeting to lay the ground for markedly tighter policy in the years ahead. The characterisation of inflation as “transitory” will be retired from the policy statement and the pace of tapering will be stepped up, with asset purchases now set to end next spring, rather than summer. In response to the Fed’s hawkish shift, we are revising our interest rate forecasts markedly higher. Rather than waiting until 2023, we now expect the Fed to hike rates twice in 2022, followed by four hikes in 2023, in a tightening cycle that will take rates to more than 2% by mid-2024.

8 December 2021

US Data Response

International Trade (Oct.)

The 8.1% m/m surge in exports in October means that net trade is on course to add about 1% point to fourth-quarter GDP growth, which we think will be 6.5% annualised, and provides more evidence that global supply chain bottlenecks are easing.

7 December 2021

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US Data Response

ISM Manufacturing Index (Jun.)

The headline ISM manufacturing index was virtually unchanged at a high level in June, but the far bigger story is the further rise in the prices paid index to 92.1 from 88.0, its highest level since the 1970s. That is consistent on past form with CPI inflation rising above 5% in the coming months.

1 July 2021

US Data Response

Durable Goods (May)

The 2.3% m/m rise in durable goods orders last month was driven by another big increase in commercial aircraft orders reflecting the recovery in air travel, with underlying orders weaker than expected. The latter is not too concerning, however, given how far orders are above their pre-pandemic trend, while the continued strength of shipments suggests that business equipment investment is on track for another strong gain in the second quarter.

24 June 2021

US Data Response

Retail Sales (May)

The 1.3% decline in retail sales in May is arguably a lot better than it looks because there were big upward revisions to the April data and spending on food and drink services posted another solid increase last month, with the latter suggesting that the recovery in services consumption is on a solid footing. While real consumption still looks likely to have fallen in May, the offsetting positive news means we are sticking to our forecast that consumption will rise by 10% annualised in the second quarter.

15 June 2021
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