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Fed becoming more hawkish by the day

The continued surge in Omicron infections suggests that the disappointing December activity data will be followed by further weakness in January, but there are no signs that it will delay the Fed’s accelerating plans to tighten policy.

Andrew Hunter Senior US Economist
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Spender of last resort

With China’s economy hampered by its zero-covid lockdowns, and Europe’s economy suffering because of the massive surge in imported energy prices caused by the war in Ukraine, the American consumer has once-again emerged as the world’s spender of last resort.

20 May 2022

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Economy powering ahead

The strength of the hard activity data for April refutes the recent message from financial markets that the economy is at risk of imminent recession. The solid gain in control group retail sales, together with upward revisions to past months leaves the underlying trend in consumer spending looking much stronger. Meanwhile the continued rebound in manufacturing output, in particular the recovery in vehicle output to the pre-pandemic level, illustrates how the gradual easing of supply shortages is supporting a rebound in production. With signs that core inflation is still running far too hot, the continued strength of economic activity supports the Fed’s decision to press ahead with 50bp rate hikes at the next couple of FOMC meetings. Nevertheless, we still expect a drop back in inflation later this year, alongside signs of a slowdown in economic activity will prompt the FOMC to shift back to 25bp hikes by the fall.

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US Data Response

Industrial Production (Apr.)

The 0.8% rise in manufacturing output last month underlines that it is not just consumer spending powering the economy forward. While the survey evidence suggests global manufacturing demand is cooling, the gradual easing of input shortages over recent months is helping to keep output growth strong.

17 May 2022

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US Economics Update

What explains the surge in household employment?

The incredibly strong gains in the household survey measure of employment over the final two months of last year, which have come at the same time as the more closely-watched payroll measure showed employment growth slowing, is mainly a catch-up effect. The cumulative rebound in the notoriously volatile household measure had been lagging the more reliable payrolls series. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

12 January 2022

US Economics Update

Omicron absenteeism a temporary economic threat

The Omicron variant is less lethal than previous strains but, even if it doesn’t require the reintroduction of restrictions to mitigate the spread, the huge volume of new cases could still deal a significant hit to the economy over the next month or two, as millions of workers are forced to stay home.

5 January 2022

US Data Response

ISM Manufacturing Index (Dec.)

The ISM manufacturing index suggests that the pace of industrial activity growth remained reasonably solid at the end of last year, but the survey came too early to capture the potentially significant supply disruptions caused by the tsunami of Omicron infections over the past couple of weeks.

4 January 2022
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