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Further evidence economy is turning a corner The sharp rebound in the ISM manufacturing index to a six-month high of 50.9 in January, from 47.8, echoes the message from the other surveys that the prospects for factory sector activity are starting to …
3rd February 2020
GDP increased by a decent 2.1% annualised in the fourth quarter, even if the underlying details weren’t quite as upbeat. Final sales to private domestic purchasers increased by a more muted 1.4%, which was a four-year low, as consumption growth slowed …
31st January 2020
Our model suggests that non-farm payroll growth will accelerate to 185,000 in January, from 145,000. The overall tone of the report will not be as positive, however, with the annual benchmark revisions likely to show big downward revisions to gains over …
30th January 2020
Growth holds steady despite weakness in private domestic sales The 2.1% annualised gain in fourth-quarter GDP was not quite as solid as it looked, with consumption growth slowing and business investment contracting for a third consecutive quarter. …
The almost unchanged statement issued at the conclusion of this week's FOMC meeting suggests that Fed officials currently don’t believe the disruption caused by the new coronavirus warrants the type of “material reassessment” to the economic outlook that …
29th January 2020
Surveys suggest underlying orders will start to improve soon The December durable goods data suggest that business equipment investment fell again in the fourth quarter. But the recent improvement in the survey evidence suggests it should soon start to …
28th January 2020
Next week’s FOMC meeting is likely to be a low-key affair, with the resilience of the recent economic data and the Phase One trade deal justifying the Fed’s decision to bring its recent rate cutting cycle to a halt last October. This week brought …
24th January 2020
A sharp slowdown in the pace of inventory accumulation weighed heavily on GDP growth in the second half of 2019 but, with that adjustment now largely over, the turning inventory cycle looks set to support a rebound in economic growth later in 2020. After …
23rd January 2020
If President Donald Trump were to win a second term, we’d expect both fiscal and monetary policy to remain loose, amid a push to install a more dovish Fed Chair in 2022. There would also be an upside risk of a second, smaller round of deficit-financed tax …
The Fed’s recent asset purchases and repo auctions have reversed more than half of the earlier quantitative tightening. Even so, it is the Fed’s interest rate cuts that have been the far more important factor driving money & credit aggregates . (See Chart …
22nd January 2020
This Update was originally sent to clients as a US Rapid Response on Tuesday 21 st January. The new Wuhan coronavirus has apparently already spread to the US – with a first case reported in Washington State – but we don't expect it to cause the sort of …
Improving data, fading trade and global risks remove need for further rate cuts Policy unlikely to be tightened again for foreseeable future Shelton, Waller nominations a sign of things to come if Trump wins second term Signs of improvement in the …
The Fed’s interest rate cuts, a truce in the trade war, and a more positive global backdrop have all set the stage for an acceleration in economic growth this year. We calculate that GDP growth was a modest 2.0% annualised in the fourth quarter, as a …
21st January 2020
The main economic impact of the signing of the Phase One trade deal this week was to further reduce the downside risks to the outlook. But the details of the deal also suggest some upside risk to economic growth this year if China follows through on at …
17th January 2020
Tentative manufacturing recovery has further to run The 0.3% fall in industrial production in December was entirely due to a weather-related slump in utilities output. The latest surveys suggest that the tentative recovery in manufacturing output is a …
December sales surge undone by downward revisions to earlier months Retail sales increased by a moderate 0.3% m/m in December, as a price-related 2.8% m/m surge in the value of gasoline station sales helped to offset a 1.3% m/m drop back in motor vehicle …
16th January 2020
The Phase One trade agreement signed today removes the downside risk of a never-ending escalation of tariffs imposed by the US and China on each other’s imports, but the modest scale of the roll-back of existing tariffs means that the deal will provide …
15th January 2020
There is mounting evidence to suggest that business investment growth is set to rebound, which should help drive overall GDP growth back above its potential pace in the second half of this year. Looking at the latest hard data, the downturn in business …
14th January 2020
Stable inflation to keep the Fed on prolonged hold The more muted 0.1% rise in core consumer prices in December suggests that the trend in underlying inflation is still close to 2%. With wage growth also moderating in recent months, there will be little …
This week brought another round of, on the whole, positive economic data, while the signing of the phase one US-China trade deal next week should further bolster confidence. With tensions in the Middle East easing, those developments support our view that …
10th January 2020
Labour market conditions remain solid The slowdown in payroll growth to a solid 145,000 last month shows that the economy is still creating more than enough jobs to keep pace with population growth. With economic growth bottoming out and likely to …
The surge in crude oil and natural gas production over the past decade has eliminated the petroleum-related trade deficit, but there is a risk that, echoing what happened in other countries that experienced similar surges, the energy revolution could yet …
9th January 2020
Recession risk remains low The chances of a recession in 2020 are still barely higher than the normal background risk. Our composite 12 month ahead probit model – based on the yield curve, financial conditions and various activity indicators – puts the …
There is little to suggest that President Donald Trump’s deregulatory agenda has provided a significant boost to economic growth. While it may still be too soon to fully judge the impact, the historical evidence suggests that hopes of a more significant …
The continued slide in the ISM manufacturing index is increasingly hard to explain, but the wider evidence suggests the more upbeat Markit manufacturing PMI is providing a more accurate gauge of activity. The further fall in the ISM manufacturing index in …
8th January 2020
Net trade provides big boost to Q4 GDP growth The sharp narrowing in the trade deficit to $43.1bn in November, from $46.9bn, was driven by another fall in imports that will be reversed in the coming months. Nevertheless, net trade appears to have provided …
7th January 2020
The renewed surge in US-Iran tensions has pushed geopolitical risk back up the list of things to worry about in 2020. But with the US no longer a net importer of oil products, the economy is likely to be resilient even if oil prices spike. With other …
3rd January 2020
Terrible ISM figures at odds with broader improvement in the data The further decline in the ISM manufacturing index in December, to its lowest level since June 2009, at face value suggests the US economy is teetering on the brink of recession. But it’s …
We estimate that non-farm payrolls rose by 150,000 in December and, with the incoming survey data improving again, jobs growth looks set to remain solid throughout 2020 as well . The 266,000 surge in non-farm payroll employment in November was boosted by …
2nd January 2020
Weak orders suggest business equipment investment stagnant The unexpected 2.0% m/m decline in November’s durable goods orders was largely due to a massive slump in defence aircraft, alongside a small dip in commercial aircraft orders. Nevertheless, …
23rd December 2019
As the boost from this year’s loosening in financial conditions feeds through, we expect GDP growth to rebound more sharply than most others anticipate in the second half of 2020. But events this week have highlighted several risks to that more positive …
20th December 2019
GDP growth appears to have slowed slightly, to between 1.5% and 2.0% annualised in the fourth quarter, but the more stable global backdrop and the lagged impact of this year’s loosening in financial conditions should drive a gradual recovery from mid-2020 …
19th December 2019
Boeing’s decision to halt production of the 737 Max aircraft could deliver a big hit to the manufacturing sector just as prospects were beginning to brighten. If it the shutdown lasts the entire quarter we estimate it could knock up to 0.5%-pts annualised …
17th December 2019
Surge in manufacturing output not just a GM story The 1.1% surge in manufacturing output last month reflected both a rebound in autos output following the end of the GM strike and a healthy gain in underlying production . Boeing’s decision to halt …
The “Phase One” trade deal apparently agreed with China is a small positive for the outlook to the extent that it removes the threat of further tariffs. But we doubt the rollback of existing tariffs or the promise of China ramping up purchases of US goods …
16th December 2019
Overview – Although trade tensions and the presidential election remain key downside risks, we expect looser financial conditions to drive an acceleration in GDP growth from the second half of next year onwards. We forecast that GDP growth will be 1.9% in …
The apparent agreement between the US and China to avoid the December increase in tariffs and begin a phased rollback of existing tariffs, together with the more upbeat tone from the Fed, all but eliminates the prospect of a final rate cut in 2020. At the …
13th December 2019
Consumption growth likely to pick up again soon The disappointing 0.2% m/m rise in retail sales in November suggests that real consumption growth was a little weaker in the fourth quarter than the 2.0% annualised reading we had pencilled in, but solid …
The Fed called time on its easing cycle today by leaving the fed funds target range unchanged at 1.50%-1.75% and striking a more upbeat tone in the policy statement. With economic growth stabilising and inflation set to remain subdued, we expect interest …
11th December 2019
Muted inflation to keep the Fed on prolonged hold A rise in energy prices pushed headline CPI inflation up to a one-year high last month, but the stability of core inflation suggests that underlying price pressures remain subdued. In that environment, we …
The incoming data this week were, on balance, positive and certainly wouldn’t prompt the sort of “material reassessment” of the outlook that Fed officials have said would be necessary to cut interest rates again at next week’s FOMC meeting. Fed on hold …
6th December 2019
Holidays come early for the labour market The much stronger than expected 266,000 gain in non-farm payrolls in November was flattered by the return of 41,000 striking GM workers but, even allowing for that, it suggests labour market conditions remain …
Net trade to boost fourth quarter GDP The sharp narrowing of the trade deficit, to a 16-month low in October, was distorted by a GM-strike related fall in auto imports and a big drop back in consumer goods imports, as the stockpiling ahead of the …
5th December 2019
Recent payroll employment growth is likely to be revised down in the annual revision early next year, which is unquestionably a negative. But the flip-side is that productivity growth must have been stronger than the current data suggest. As we’ve flagged …
4th December 2019
Looser financial conditions & improving economic data mean no further cuts needed Fed will not want to repeat the mistake of raising rates prematurely With inflation set to remain low, Fed is now on prolonged hold The Fed’s less dovish language, against a …
Manufacturing still not out of the woods The small decline in the ISM manufacturing index to 48.1 in November, from 48.3, left it close to the decade-low reached in September. Despite the improvement some of the alternative manufacturing surveys and the …
2nd December 2019
We still expect GDP growth to slow a little further over the coming months, but the latest data suggest that the slowdown in the fourth quarter won’t be quite as bad as we had previously feared. The narrowing in the advance goods trade deficit to $66.5bn …
27th November 2019
Economic growth slowing less than feared The rise in durable goods orders last month was driven by a surge in orders for underlying capital goods, suggesting that business equipment investment is holding up better than anticipated . Together with the …
We estimate that non-farm payrolls rose by a decent 170,000 in November, flattered by the return of striking GM workers. We wouldn’t take too much comfort from that, however, because recent gains look set to be revised sharply lower in the upcoming annual …
The key housing releases this week provided further evidence that the big decline in mortgage rates is feeding through to a rebound in residential investment. That won’t be enough to prevent the overall economy slowing in the fourth quarter. But we do …
22nd November 2019
