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Sharper slowdown in wage growth still lies ahead The slightly stronger 1.1% increase in the employment cost index in the third quarter is another sign that the earlier rapid easing in labour market conditions may be fading, but the forward-looking …
31st October 2023
Has the AI productivity boom already begun? New Speaker, old problems The House Republicans finally managed to elect a new Speaker this week, with the caucus eventually rallying around Mike Johnson, who up until this week could hardly have been described …
27th October 2023
Stronger rise in core prices likely to be a blip The stronger gains in real consumption and the core PCE price index in September are a potential concern for Fed officials, but won’t be enough to convince them to resume raising interest rates next week, …
After the 336,000 jump in non-farm payrolls in September, we expect a more modest 200,000 increase in October. Moreover, despite some strength in labour demand, wage growth continues to ease. September’s unexpectedly-strong 336,000 rise in non-farm …
26th October 2023
US households still the world’s spenders of last resort On its own, the stunningly-strong 4.9% annualised gain in third-quarter GDP suggests that the Fed needs to do even more to slow demand, but just as notable was the slowdown in core PCE inflation to …
Fed to hold rates at 5.25%-5.50%, and keep further tightening on the table… …but surging long-term Treasury yields reducing appetite for final hike Sharp decline in core inflation to see rates cut to 3.25%-3.50% by end-2024 We don’t expect a significant …
25th October 2023
The apparent strength of third-quarter GDP growth won’t convince the Fed to resume hiking its policy rate, particularly with the ongoing surge in long-term bond yields presenting a growing threat to the economy. Q3 GDP growth strong Despite the recent hit …
20th October 2023
The renewed surge in long-term Treasury yields illustrates that the full impact of Fed tightening is still feeding through, and we continue to expect economic growth to slow sharply over the coming quarters. With core inflation still looking on course to …
The ongoing outflow of funds from the Fed’s reverse repo facility has completely offset the downward pressure on bank reserves from quantitative tightening (QT), suggesting that the Fed could continue to let its asset holdings run down for longer than …
18th October 2023
Further evidence of economic strength in September The 0.3% m/m rise in industrial production in September is another sign that the real economy remains in solid shape. Production was hit by a slight 0.3% m/m drop-back in utilities output, but that was …
17th October 2023
This page has been updated with additional analysis since first publication. Consumption solid heading into Q4 The unexpectedly-strong 0.7% m/m rise in retail sales in September continues the theme of consumer resilience in the face of higher interest …
Confidence suffers from renewed inflation concerns The sharp fall in the University of Michigan consumer sentiment index to a five-month low of 63.0 in early October, from 68.1, probably reflects the hit from recent financial market moves, as well as …
13th October 2023
There appears to be growing support at the Fed for the idea that the recent sell-off in long-term Treasuries reduces the need for further policy rate hikes, but the more persuasive reason for the Fed to pause is that inflation is continuing to ease …
This page has been updated with additional analysis since first publication. Core inflation to remain on downward trend The 0.3% m/m rise in core consumer prices in September suggests, at face value, that the downward trend in core inflation may be …
12th October 2023
Minutes stress uncertainty over economic outlook Despite the ‘higher for longer’ message from the Fed’s updated rate projections last month, the minutes from the September FOMC meeting suggest that officials’ confidence in those forecasts is limited, with …
11th October 2023
Rising long rates a fiscal rather than monetary problem Surge in long yields not all due to higher for longer The conventional wisdom is that the recent surge in Treasury yields is a reaction to the Fed’s “higher for longer” message. But that surge has …
6th October 2023
Despite strong payrolls, wage growth continues to slow The surprisingly strong 336,000 increase in non-farm payrolls in September adds to the evidence on real activity that the economy is holding up well despite the headwind from higher interest rates. …
Q3 exports rebound, but outlook remains weak The trade deficit narrowed to a three-year low of $58.3bn in August, from $64.7bn, as exports increased by $4.1bn or (+1.6% m/m) and imports declined by $2.3bn (-0.7% m/m). The gain in exports was driven by a …
5th October 2023
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
Surveys consistent with moderate growth The small fall in the ISM services index to 53.6 in September, from 54.5, contradicted the rebound in the ISM manufacturing index. Nevertheless, the weighted average of the two ISM surveys are still consistent with …
Although the job openings rate rebounded sharply in August, we suspect that was more noise than a signal that the labour market is enjoying a resurgence. The rest of the JOLTS report presented a more balanced picture, with the latest data still pointing …
3rd October 2023
ISM hits 10-month high; construction boosted by lack of homes for sale The ISM manufacturing index rallied to a 10-month high of 49.0 in September, from 47.6, but that still leaves the index at a level that, historically, has been consistent with GDP …
2nd October 2023
The stakes could not be higher for this year’s presidential election – with the head-to-head rematch between Joe Biden and Donald Trump offering starkly contrasting polices on trade, the environment and international relations. Historically, US …
Overview – We expect GDP growth to slow from 2.1% this year to only 0.8% in 2024, with the economy still likely to experience a near recession around the end of this year. Core inflation will continue to fall back to the 2% target by mid-2024, with much …
29th September 2023
GDP-GDI gap left largely unexplained In the end, the comprehensive revisions to the GDP data changed almost nothing of substance – the real economy was still 6.1% bigger in the second quarter of this year than it was pre-pandemic in the fourth quarter of …
Core PCE inflation slowing rapidly despite resilient consumption The August income & spending data confirm that real consumption growth strengthened in the third quarter, but also cast doubt on the market narrative that resilient growth will see interest …
We forecast a 170,000 increase in non-farm payrolls in September as employment growth continues to trend lower, but a government shutdown may disrupt the release of the data on Friday 6 th October. Recent downward revisions took three-month average …
28th September 2023
The direct hit to the economy from even an extended government shutdown beginning next week would be modest. But it could also result in delays to key data releases, including the September employment and CPI reports due over the next couple of weeks. At …
GDP revisions change little; recent gap with GDI remains The comprehensive benchmark revisions to the GDP data changed almost nothing of substance – the real economy was still 6.1% bigger in the second quarter of this year than it was pre-pandemic in the …
Equipment investment growth still set to slow The 0.2% m/m rise in durable goods orders in August was, at first glance, better than expected, but the outperformance was mainly due to a surge in defence aircraft orders. Admittedly, gains in core orders and …
27th September 2023
Rising bankruptcy filings by large corporations are another reason to doubt that the economy will continue to grow at close to its potential rate, as the Federal Reserve now seems to believe. Admittedly, the bankruptcy data suggest that consumers and …
26th September 2023
The new projections published by the Fed this week signalled that officials are fully onboard with the idea of interest rates staying ‘higher for longer’, but that is based on forecasts for real economic growth and inflation which we believe are …
22nd September 2023
The Fed doubled down on its mantra that interest rates will remain higher for longer, with its updated projections suggesting that the economy will enjoy the softest of soft landings and core inflation will still take some considerable time to return to …
20th September 2023
Fed wants us to believe in “higher for longer” The Fed left its policy rate unchanged at 5.25% to 5.50% and, while the median forecast still shows one more 25bp rate hike this year, the FOMC appears to be more evenly split, with 12 in favour of that hike …
The prevalence of fixed-rate debt suggests the Fed’s aggressive rate hikes will continue to deal less damage to the economy than they might have done in the past. But higher rates are still likely to take a further toll on consumption and business …
Despite the recent rebound in energy prices, the downward trend in core inflation remains firmly intact. And with a growing number of indicators suggesting the labour market is not much tighter than it was in 2019, we expect wage and price inflation to …
The United Auto Workers (UAW) strike action aimed at the Big Three automakers should have only a trivial effect on the broader economy. More generally, despite the tightness of labour market conditions and the recent surge in prices, work stoppages …
19th September 2023
Easing inflation expectations an encouraging sign for Fed The small fall in the University of Michigan index suggests that consumers remain downbeat in September. But the bigger news was the fairly sharp drop-back in households’ inflation expectations – …
15th September 2023
Core inflation still on firm downward trend Although core CPI increased by 0.3% m/m in August (or 0.28% to be precise), up slightly on the 0.2% m/m gains (both 0.16%) in the preceding two months, the rise last month was still smaller than the average gain …
Drop back in motor vehicle output not a concern The 0.1% m/m increase in manufacturing output in August was marginally better than we had expected, but doesn’t change the broader picture, which is that, with global manufacturing still struggling, the …
This page has been updated with additional analysis since first publication. Consumer strength fading The 0.6% m/m rise in retail sales values in August was mostly due to price-related strength in gasoline sales, with the muted 0.1% rise in underlying …
14th September 2023
Fed to keep rates unchanged at 5.25%-5.50% next week New SEP to show officials less convinced of need for further hikes Rapid decline in inflation will see rates cut to 3.25%-3.50% by end-2024 The Fed is set to keep rates unchanged at 5.25%-5.50% at the …
13th September 2023
This page has been updated with additional analysis since first publication. Downward trend in core inflation still firmly intact The Fed will look through the 0.6% m/m jump in headline CPI in August as it was driven by the recent rally in energy prices. …
The recent weakness of Gross Domestic Income (GDI) is only partly because it includes the losses now being incurred by the Federal Reserve. Even after excluding those, GDI paints a much weaker picture of recent economic performance than GDP. As GDI has …
11th September 2023
Higher energy prices not a game changer for the Fed Crude oil prices up, wholesale gasoline down? The further rise this week in the WTI crude oil price to a 10-month high of $87 a barrel, from a recent low of less than $70 in late June, has raised …
8th September 2023
M1 narrow money continues to contract at a double-digit annual pace, as higher interest rates temper demand for low-return deposits. Broader money growth is not faring quite as badly, since higher rates are also boosting demand for savings deposits and …
6th September 2023
Modest rise leaves index at subdued level The rise in the ISM services index to a six-month high of 54.5 in August, from 52.7, is a further sign that activity growth is holding up in the third quarter. That said, a weighted average of the two ISM surveys …
Trade deficit widens, as consumer goods imports rebound Net external trade is on track to provide a modest positive contribution to third-quarter GDP growth, despite the widening in the monthly trade deficit to $65.0bn in July, from $63.7bn. Exports …
A growing number of indicators suggest that the labour market is no longer much tighter than it was in 2019 and that, as a result, wage growth is also likely to slow towards pre-pandemic levels soon. This suggests that most of the required adjustment in …
This page has been updated with additional analysis since first publication. Still consistent with weak output growth and slower inflation The further rise in the ISM manufacturing index to a six-month high of 47.6 in August, from 46.4, is another sign …
1st September 2023
