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This week brought more data showing that real economic activity is holding up surprisingly well given surging interest rates but, in part due to the easing in labour market conditions, price pressures are nevertheless fading. US consumer remains the …
1st September 2023
This page has been updated with additional analysis since first publication. Labour market strength fading rapidly The 187,000 gain in non-farm payrolls, jump in the unemployment rate and slowdown in wage growth in August all add to the evidence that …
Consumption boosted by heatwave Real consumption increased by a bigger than expected 0.6% m/m in July, which will result in another round of upward revisions to third-quarter GDP growth. Our own forecast is now up to 2.3%. But the strength in July is …
31st August 2023
Big gap between GDP and GDI persists Second-quarter GDP growth was revised down marginally to a still-healthy 2.1% annualised from 2.4%, but the alternative GDI (gross domestic income) measure suggests the economy expanded at a much slower 0.5% annualised …
30th August 2023
The July JOLTS data cast further doubt on the idea that the Fed will need to keep rates high for longer. With the job quits rate now below its pre-pandemic peak and the job openings rate also rapidly approaching that level, labour market conditions have …
29th August 2023
The SAVE student loan plan eases the burden on low-income households and should reduce the economic impact as repayments resume in October. Nonetheless, with the hit to disposable incomes just one of several headwinds in the fourth quarter, it is still …
After a relatively cautious speech at Jackson Hole from Fed Chair Jerome Powell and data this week which cast doubt on the idea of an economic resurgence, we still aren’t convinced that the rise in market interest rate expectations for the next few years …
25th August 2023
Solid growth not yet prompting Fed rethink Fed Chair Jerome Powell underscored the FOMC’s commitment to data dependence in his Jackson Hole speech today, but there was no suggestion that signs of economic resilience have already prompted Fed officials to …
We forecast a 170,000 increase in non-farm payrolls in August, illustrating that despite the apparent resilience of GDP growth, employment growth is still trending lower. The increases in employment of 185,000 and 187,000 over the previous two months have …
24th August 2023
Equipment investment set to stagnate The 5.2% m/m fall in durable goods orders mainly reflected a reversal of the earlier jump in aircraft orders and wasn’t actually as bad as we had expected, with core orders also surprising on the upside. But the …
Survey consistent with economic stagnation The slump in the S&P Global composite PMI to a six-month low in August casts further doubt on the idea that the economy is accelerating, with the index consistent on past form with GDP growth of close to zero. …
23rd August 2023
The continued surge in long-term Treasury yields to their highest level since before the financial crisis, as expectations of an economic re-acceleration have mounted, sets a fraught backdrop ahead of Fed Chair Jerome Powell’s speech at Jackson Hole next …
18th August 2023
Fed officials in wait-and-see mode The minute of the Fed’s late July meeting suggest that, amid “tentative signs that inflation pressures could be abating”, officials were in no rush to follow up the 25bp rate hike at that meeting with another in …
16th August 2023
Growth in the real economy appears to be gathering momentum, but with survey-based indicators still weak and credit conditions continuing to tighten, we expect that rebound to be short-lived. In contrast, labour market conditions continue to ease. Nominal …
Manufacturing boosted by seasonal adjustment problems The 1.0% m/m surge in industrial production in July was partly due to a weather-related jump in utilities output and, although manufacturing output also rebounded by a solid 0.5%, the surveys suggest a …
This page has been updated with additional analysis since first publication. Consumer resilience continues The 0.7% m/m jump in retail sales in July suggests that tighter monetary policy is still having remarkably little impact on real economic activity, …
15th August 2023
Falling expectations drag down confidence The University of Michigan consumer sentiment index stalled in August, with the index slipping back to 71.2, from 71.6. With tighter credit conditions and a weaker labour market likely to weigh on confidence …
11th August 2023
Inflation and activity data at odds Core price pressures collapsing It might seem a little premature to be celebrating when annual core CPI inflation was still as high as 4.7% in July, down only trivially from 4.8%, but don’t be fooled by the strong …
Apart from lagging shelter prices, Fed already hit its inflation target The disinflationary pressures continued to build in July, with both headline and core CPI increasing by a moderate 0.2% m/m. Admittedly, the annual headline inflation rate actually …
10th August 2023
Exports set for renewed weakness soon The narrowing in the trade deficit to $65.5bn in June, from $68.3bn, mainly reflected a further slide in imports, with exports little changed. But with the survey evidence suggesting that renewed weakness in exports …
8th August 2023
Inflationary pressure dissipating ULC growth slowdown adds to disinflation pressure The news that average hourly earnings growth increased by 0.4% m/m in July, and 4.4% over the past 12 months, might seem like a problem for the Fed. With productivity …
4th August 2023
Labour market conditions easing Non-farm payroll employment increased by 187,000 in July and, while that represented a trivial improvement on the downwardly revised 185,000 gain the month before, those are otherwise the two weakest monthly gains in …
Surveys point to muted activity growth and lower core inflation The fall in the ISM services index in July illustrates that even though the risks of a recession may be easing, that doesn’t mean the economy is set to enjoy a strong performance over the …
3rd August 2023
Fitch downgrade to have little impact The news that Fitch Ratings is downgrading its US sovereign credit rating one notch from AAA to AA+ has predictably had little to no immediate impact on the Treasury market – yields are up on the day, but down since …
2nd August 2023
Falling vacancies in sectors where wage growth has been particularly strong will provide some comfort to the Fed, however the JOLTS survey showed that the broader labour market remained resilient in June. The job openings rate remained unchanged at in …
1st August 2023
This page has been updated with additional analysis since first publication. Subdued manufacturing activity keeping inflationary pressures muted The modest improvement in the ISM manufacturing index to 46.4 in July, from 46.0, suggests the manufacturing …
The Fed’s latest Senior Loan Officer Opinion Survey shows that, even though the banking crisis has faded, credit conditions remain unusually tight. Although the net percentage of banks tightening lending standards on commercial real estate loans fell back …
31st July 2023
This week’s FOMC meeting brought hints that Fed officials are no longer wedded to previous plans for further policy tightening. Even if activity growth continues to hold up a bit better than expected, we think a run of weaker inflation readings will …
28th July 2023
Slowdown in wage & price inflation despite resilience in activity The slowdown in both the employment cost index of wage growth and core PCE inflation to their lowest levels in nearly two years suggests that resilient activity growth won’t be enough to …
We expect the July employment report to show a continued gradual slowdown in employment growth and a decline in wage growth to a two-year low. That should give Fed officials a little more confidence that the moderation in core inflation will continue. The …
27th July 2023
Economy shrugs off impact of higher rates The 2.4% annualised gain in second-quarter real GDP growth, which means the economy expanded at close to its potential pace over the first half of the year, suggests that higher interest rates are having …
As everyone expected, the Fed increased its policy rate by an additional 25bp today, taking the fed funds target range to between 5.25% and 5.50% but, while officials are possibly still eyeing one final hike later this year, futures markets are mostly …
26th July 2023
Policy rate now at peak, as disinflation will persuade Fed to stand pat in September As everyone expected, the Fed increased its policy rate by an additional 25bp today, taking the fed funds target range to between 5.25% and 5.50% but, while officials are …
The sharp rise in the share of the population with a disability may reflect the legacy of the pandemic. But with the rise in disability rates doing little to keep people out of work, it isn’t necessarily a problem for the economy. According to the …
25th July 2023
The Fed is almost certain to hike its policy rate by 25bp to between 5.25% and 5.50% at next week’s FOMC meeting, but we increasingly believe that will prove to be the peak. Despite the ‘higher for longer’ rhetoric from officials, a more marked decline …
21st July 2023
25bp rate hike next week likely to be the last, with rates peaking at 5.25%-5.50% Run of better inflation data to convince Fed to scrap plans for further hikes Falling inflation and weaker economy will see rates cut to 3.25%-3.50% by end-24 Fed officials …
19th July 2023
We still think the economy is more likely than not to fall into a mild recession later this year, as higher interest rates remain a drag and credit conditions continue to tighten. With the labour market proving resilient and core inflation still much too …
Manufacturing malaise set to continue The further slump in industrial production in June illustrates that some parts of the economy are already struggling and, as global manufacturing demand continues to soften, we expect further weakness in the second …
18th July 2023
Underlying sales better than muted headline gain suggests Despite the modest 0.2% m/m rise in headline retail sales in June, the bigger 0.6% m/m gain in underlying control group sales is a bit more encouraging, although second-quarter consumption growth …
The resurgence in female prime-age participation to a record high is helping to support labour force growth, but the recent rapid pace of improvement is likely to fade soon. Although the overall labour force participation rate continues to be held down by …
17th July 2023
The news that core CPI increased by a muted 0.16% m/m in June, which is less than 2% in annualised terms, has raised hopes that the Fed’s planned rate hike this month will be the last in this cycle, with the policy rate peaking at 5.25% to 5.50%. …
14th July 2023
Jump in confidence unlikely to last long The sharp rise in the University of Michigan consumer sentiment index to 72.6 in early July, from 64.4, leaves it close to a two-year high. That said, it remains fairly weak by historic standards, and the chances …
The resilience of consumption over the past year is partly because households have been willing to save less of their income than before the pandemic, which lends some support to the idea that consumers have been drawing down a stock of “excess” savings …
13th July 2023
This page has been updated with additional analysis since first publication. Core inflation has much further to fall The muted 0.2% m/m rise in core consumer prices in June won’t stop the Fed from hiking rates again later this month, but it supports our …
12th July 2023
Overview – We still think a mild recession over the coming quarters is more likely than not. As the economy weakens and the downward trend in core inflation gathers pace, we think interest rates will eventually be cut more quickly than markets are pricing …
11th July 2023
The surge in immigration and improvement in labour supply has helped ease wage growth moderately. But, with limited scope for a further rapid recovery in the labour force, we think a sustained period of weaker labour demand is required to pull wage …
10th July 2023
The 10-year Treasury yield climbed back above 4% this week, as markets interpreted the minutes of the mid-June FOMC meeting as hawkish and reacted to signs that, although labour market conditions may be easing, wage growth remains too high. Most …
7th July 2023
This page has been updated with additional analysis since first publication. Easing employment growth offset by stubborn wage growth The 209,000 rise in non-farm payrolls in June was the weakest gain since December 2020 and suggests labour market …
The fall in job openings in May suggests that labour shortages continue to ease, although the rebound in the job quits rate implies that wage growth is set to slow only gradually. The renewed fall in the job openings rate to 5.9%, from 6.2% in April, …
6th July 2023
Services activity rebounds; job openings still trending lower The rebound in the ISM services index to a four-month high of 53.9 in June, from 50.3, leaves a weighted average of the services and manufacturing indices at a level that, historically, has …
