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With the next phase of President Joe Biden’s Recovery plan spending likely to take a considerable time to pass Congress and be largely financed by higher taxes, it looks set to have a far smaller bearing on the near-term economic outlook than the $1.9trn …
1st April 2021
Demand continuing to outstrip supply The rise in the ISM manufacturing index to 64.7 in March, the highest level since 1983, echoes the message from the other surveys that demand is surging. But the details suggest that supply is struggling to keep up, …
In a world where the Phillips curve is flat, inflation expectations become the key driver of actual inflation over the medium term. But getting a true handle on inflation expectations is difficult because of the large number of diverse measures that are …
31st March 2021
We suspect that President Joe Biden will struggle to garner bipartisan support for his $2trn in infrastructure spending, even if he was willing to placate centrist Senate Republicans by dropping his proposal to fully fund that investment by raising …
The Fed’s asset purchases are fuelling a continued surge in the narrow money aggregates, but growth in both our M3 measure of broad money and bank lending remain on a downward trend. (See Chart 1.) The Fed’s balance sheet has continued to expand in step …
30th March 2021
News reports suggest President Joe Biden will unveil plans for a large infrastructure package on Wednesday. We expect the package will take much longer and be harder to pass than the $1.9trn American Rescue Plan, and the economic effects will be more …
26th March 2021
We expect the labour market recovery to have kicked into a higher gear in March, with non-farm payrolls increasing by 700,000. The 379,000 increase in payrolls last month was driven by a 355,000 rebound in the leisure and hospitality sector, as the rapid …
25th March 2021
The unusual rise in the Fed’s preferred PCE measure of inflation above CPI inflation in January partly reflects the impact of the differing methodology which, as spending patterns return to pre-pandemic norms, should be reversed this year. But it is also …
24th March 2021
Weather disruption will be reversed in March The fall in durable goods orders in February was mainly due to the disruption caused by the severe winter storms, which we already know weighed heavily on manufacturing output last month. The latest surveys …
The Fed made clear this week that it still has no plans to raise interest rates within the next three years. But that apparently rests on the belief that the strongest economic growth in nearly 40 years will generate almost no lasting inflationary …
19th March 2021
The updated economic projections released after the Fed’s mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren’t thinking about thinking raising …
17th March 2021
Base effects will temporarily drive headline and core CPI inflation up sharply over the coming months but, with underlying price pressures also starting to mount, we expect core CPI inflation to remain elevated over the next couple of years. (See Chart …
Weather wreaks havoc The 2.2% drop in industrial production in February was largely a result of the severe storms that battered the country in the second half of the month and should be mostly reversed in March. But there were also signs that global …
16th March 2021
January surge only partly reversed The 3.0% m/m fall in retail sales in February reflects the fading of the boost from the $900bn fiscal stimulus and disruption caused by the severe winter weather. Regardless, sales remain more than 4% higher than they …
Discussion now turns to infrastructure package With President Joe Biden having signed the $1.9trn American Rescue Plan into law, the discussion will now move on to the American Recovery Plan, the complementary package that will focus on longer-term …
12th March 2021
Fed will not sound the alarm about rising bond yields Officials will revise up GDP and inflation forecasts in light of $1.9trn fiscal stimulus… …but projections could still signal rates on hold through end-2023 We expect the Fed to leave policy unchanged …
10th March 2021
Weakness in core inflation unlikely to last much longer The rise in CPI inflation to 1.7% in February, from 1.4%, was largely due to higher energy prices, with core inflation still subdued. But base effects will push core inflation above 2% by April and …
Although Democrats are close to securing passage of nearly all the $1.9trn originally requested by President Joe Biden in his American Rescue Plan, which is significantly more than the $1trn in additional money we had originally assumed would be coming …
6th March 2021
The sell-off in Treasuries continued this week, as Fed officials signalled that they are not overly concerned by rising yields and the Senate closed in on passing President Joe Biden’s $1.9trn fiscal package. The latter reinforces our view that both GDP …
5th March 2021
Employment surges as COVID-related restrictions lifted The 379,000 increase in non-farm payrolls in February reflects the lifting of coronavirus containment measures (with a helping hand from the $600 stimulus cheques), with the reopening of restaurants …
Around half of the four million decline in the labour force over the past year reflects a wave of early retirements which is likely to be irreversible. The smaller 2.3 million drop in prime-age participation is almost entirely due to pandemic-related …
3rd March 2021
If real yields continue to rise we could see the Fed shifting the composition of its monthly asset purchases to focus more on the long end of the curve, but we doubt that it would be willing to adopt an explicit yield control target, particularly not as …
2nd March 2021
Supply shortages putting upward pressure on prices The further increase in the ISM manufacturing index last month to 60.8, from 58.7, highlights that the recovery in the sector remains red-hot, with the jump in the prices paid component suggesting that …
1st March 2021
Fed Chair Jerome Powell’s testimony to Congress – together with similarly-dovish speeches from key Board members this week – underlined the Fed’s new commitment to the full employment side of its mandate. That may not have convinced investors, but we …
26th February 2021
With virus cases falling and containment measures being eased, we expect the partial reopening of the leisure and hospitality sector to translate into a 500,000 increase in non-farm payrolls in February. Non-farm payrolls increased by a modest 49,000 in …
25th February 2021
Equipment investment growth still unusually strong The stronger-than-expected rise in durable goods orders in January lifted them decisively above their pre-pandemic level, which is even more impressive given the still-subdued level of aircraft orders. …
Much of the recent discussion on whether the proposed $1.9trn fiscal stimulus, equivalent to nearly 9% of GDP, could be too big when the output gap is closer to 3%, has glossed over the fact that the remaining shortfall in output is concentrated in the …
23rd February 2021
The economy has started 2021 on a stronger footing than we anticipated. The 5.3% surge in retail sales last month underlined just how quickly stimulus cheques fed through to stronger spending on big-ticket items, while loosening virus restrictions are …
19th February 2021
Economic activity seems to have responded strongly to the latest round of fiscal stimulus passed in mid-December and the drop in coronavirus case numbers, which has allowed for the easing of containment measures in many states. But there are also signs …
Even if a significant share of the $1.6trn of student loan debt owed to the Federal government was forgiven, it would provide only a limited boost to activity while driving a potentially sizable further increase in the budget deficit. President Joe Biden …
18th February 2021
Manufacturing output closing in on pre-pandemic level The stronger-than-expected 0.9% m/m rise in industrial production in January, driven by a 1% rise in manufacturing output, means that production is still lagging behind the recovery in goods …
17th February 2021
Fiscal stimulus turbocharges recovery The 5.3% m/m surge in retail sales in January underlines how quickly reopenings and the $600 stimulus cheques have fed through to stronger spending. The faster than expected fiscal boost means we now forecast first- …
The continued surge in growth of narrow measures of the money supply underline that the economy is awash with liquidity, but that will not trigger a surge in price inflation when growth in the broader money supply and bank lending are trending lower. (See …
16th February 2021
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. Dovish Powell Fed Chair Jerome Powell’s use of …
12th February 2021
We suspect that President Joe Biden’s plan to more than double the minimum wage within four years would have only a minimal impact on GDP. While there would almost certainly be some job losses as a result, we expect most of the adjustment would come via …
10th February 2021
Inflation unlikely to remain so subdued for long The fall in core CPI inflation to 1.4% in January, from 1.6%, illustrates that price pressures remain weak, but base effects will drive both core and headline inflation back above 2% over the coming months …
The latest NFIB and JOLT surveys suggest that labour market conditions remain stronger than the headline data imply and add to the evidence that inflation will rebound this year. The drop in the job hiring rate in December is no surprise given the …
9th February 2021
This week the Democrats took the first step toward forcing a large-scale stimulus through the Senate using reconciliation, which only requires a simple majority. But even though it required an all-night session to pass the budget motion that unlocks …
5th February 2021
Labour market recovery likely to regain momentum soon The muted 49,000 increase in non-farm payrolls in January illustrates that the recent wave of COVID-19 cases is still weighing on the economy. But with infections now dropping back sharply and the …
Fed Chair Jerome Powell’s claim that the ‘true’ unemployment rate is still close to 10% only makes sense if the four million workers who left the labour force last year will return. It’s still too soon to tell for sure, but the evidence so far suggests …
4th February 2021
The Fed’s Senior Loan Officer Survey reveals that access to credit is improving for consumers, which will support an acceleration in consumption growth this year. Although the latest Senior Loan Officer Survey shows a small net share of banks continuing …
2nd February 2021
Strong recovery to continue The fall in the ISM manufacturing index to 58.7 in January was a little weaker than we had expected, but it remains close to the three-year high of 60.5 reached in December and at a level consistent with manufacturing output …
1st February 2021
The rapidly accelerating vaccine rollout means that the economic outlook continues to brighten. But Fed Chair Jerome Powell’s dovish tone in his post-FOMC press conference this week reinforces our view that the Fed will maintain its current ultra-loose …
29th January 2021
We estimate that non-farm payroll employment was broadly unchanged in January, but the recent fiscal support and drop-back in new virus cases suggest the labour market recovery will resume soon. The 140,000 fall in payrolls in December was driven by a …
28th January 2021
Growth temporarily dragged down by coronavirus resurgence The more modest 4.0% annualised gain in fourth-quarter GDP was mainly due to some temporary weakness in consumption, which was dragged down by the resurgence in coronavirus infections. With …
The Fed acknowledged in its post-FOMC meeting statement today that the economic recovery weakened in the final couple of months of last year, but balanced that near-term pessimism with greater optimism that vaccines had reduced the medium-term risks to …
27th January 2021
Business equipment investment already back above pre-pandemic levels The weaker 0.2% gain in headline durable goods orders in December was mainly due to ongoing problems among aircraft manufacturers and a drop off in defence orders. The bigger story is …
The rebound in market-based inflation compensation measures will not alarm the Fed since expectations are still relatively muted. Instead, Fed officials are more likely to view the rise as a welcome vindication of the tweaks they made to the policy …
26th January 2021
Incoming President Job Biden signed a flurry of executive orders during his first couple of days in office, but it remains to be seen whether the divided Senate will support his broader agenda, particularly his call for more large-scale fiscal stimulus. …
22nd January 2021
Recent data show the current wave of virus infections weighing on the economy, with retail sales falling again in December and the labour market recovery stalling. We think fourth-quarter GDP growth slowed to 4.5% annualised, but the relatively softer end …
21st January 2021
