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The latest activity data suggest that economic growth will slow to just 1.0% annualised in the fourth quarter, from 1.9% in the third, but there are growing hopes that may prove to be the nadir. Much of that slowdown is being driven by firms running down …
20th November 2019
Loose financial conditions make a recession unlikely The risk of a recession occurring within the next year appears to have faded – with the yield curve un-inverting, financial conditions loosening and the incoming economic data still comfortably above …
We expect economic growth to slow over the coming quarters, but the fading downside risks from the global backdrop and trade policy, together with new, less dovish language from the Fed means we are no longer forecasting a final 25bp rate cut. We now …
15th November 2019
Slump in autos & utilities will soon be reversed The 0.8% m/m plunge in industrial production last month was almost entirely due to the strike at GM and a weather-related fall in utilities output . With the strike now over, and much of the country hit …
Consumption growth continues to slow gradually The 0.3% m/m rise in retail sales in October illustrates that while consumer spending growth is slowing gradually, it remains a relative bright spot. We expect real consumption growth to slow to between 2.0% …
No sign of tariff impact The larger 0.4% rise in consumer prices last month was mainly due to higher gasoline prices, with little sign of the September tariffs pushing up prices of consumer goods. If anything, underlying price pressures appear to be …
13th November 2019
We still expect GDP growth to slow a little further in the fourth quarter, but the recent stabilisation in the activity surveys, along with the growing prospect of a meaningful trade truce with China, suggest that the prospects for the economy next year …
8th November 2019
Trade to remain a drag on growth The narrowing in the trade deficit to $52.5bn in September, from $55.0bn, confirms that net trade was broadly neutral for third-quarter GDP growth, although we expect it to become a renewed drag in the fourth quarter. The …
5th November 2019
The Fed’s latest Senior Loan Officer survey points to a continued drop off in demand for commercial and industrial loans, consistent with business equipment investment contracting again in the fourth quarter. And while looser policy has prompted a surge …
Although the clear message from the Fed this week was that they do not intend to ease policy further, we expect a continued slowdown in economic growth and persistently below target inflation will ultimately force them to cut rates once more. That said, …
1st November 2019
Manufacturers still struggling The muted rebound in the ISM manufacturing index to 48.3 in October, which left it only slightly higher than September’s decade low of 47.8, takes some of the shine off the better-than-expected payrolls data released earlier …
Underlying pace of payroll gains rebounding The solid 128,000 gain in non-farm payrolls was more impressive than it looked given it was depressed by the GM strike and a census-related drop in Federal employment. Together with upward revisions to previous …
The Fed cut interest rates for a third time as expected today, to between 1.5% and 1.75%, but changes in the statement suggest it is trying to dissuade the markets from pricing in any further loosening. Nevertheless, we still anticipate that a further …
30th October 2019
Slowing activity growth will keep the Fed cutting The 1.9% annualised increase in third-quarter GDP, down only marginally from the 2.0% gain in the second, was a little stronger than we had expected. But it still pushed the economy’s annual growth rate …
Yield curve un-inversion lowers recession risk With the yield curve un-inverting, our composite model indicates that the probability of a recession in 12 months’ time has fallen to 11.7%, from a recent peak of more than 20%. (See Chart 1.) Nevertheless, …
28th October 2019
The Fed will probably cut interest rates for third consecutive time at the conclusion of its two-day policy meeting Wednesday. That will come shortly after GDP figures for the third quarter are released, which we expect to show growth was a muted 1.5% …
25th October 2019
We estimate that non-farm payrolls rose by just 25,000 in October, mainly reflecting disruption caused by the strike at GM. Even excluding that temporary hit, however, the underlying pace of employment growth still appears to be slowing. The 136,000 gain …
24th October 2019
GM strike plays only minor role in orders weakness The 1.1% m/m decline in durable goods orders in September was only partly due to the GM strike, with an unexpected decline in commercial aircraft orders and weakness in underlying orders also contributing …
Officials have not pushed back on expectations for a 25bp cut this meeting Further slowdown in economic growth will prompt one final 25bp cut in December Rates would end up back at zero in a recession, but few signs one is imminent With the markets still …
23rd October 2019
The news of an apparent trade “deal” between the US and China has pushed back the threat of further tariffs and helped to un-invert the yield curve, but economic growth still appears to be slowing. Our tracking estimate suggests that growth slowed to 1.5% …
21st October 2019
Agreement to end GM strike won’t save October The tentative deal agreed this week between General Motors (GM) and the United Auto Workers (UAW) Union came too late to prevent a sharp downturn in October’s employment data, but any declines should be …
18th October 2019
Output dragged down by GM strike The 0.4% m/m decline in industrial production in September was principally due to the GM strike, which dragged down autos production, and the unseasonably warm weather, which depressed utilities output. Nevertheless, aside …
17th October 2019
The Fed’s move to begin purchasing $60bn of Treasury bills per month will eventually push the size of its balance sheet back up to $4trn over the coming year, not far below its $4.2trn peak. However it would be wrong to view this as a complete …
16th October 2019
Underlying consumption growth slowing The drop back in retail sales in September was driven partly by a price-related drop in gasoline sales, but the fact that underlying control group retail sales were unchanged provides another clear sign that …
Trade talks with China look set to conclude today with a “mini deal”, reducing the immediate risks of a further rise in tariffs. But existing tariffs will remain in place, including the September tariff hike, which has yet to really affect the economy. …
11th October 2019
No sign of tariff impact The muted gain in core consumer prices in September illustrates that, even after the introduction of additional tariffs on Chinese imports, inflationary pressures are still well contained. In that environment, a further slowdown …
10th October 2019
The strike at General Motors, together with continued problems at Boeing, means that the incoming manufacturing data over the next month or two will go from bad to terrible . That is another reason to expect economic growth to slow further in the fourth …
9th October 2019
Other surveys suggest that the ISM manufacturing index is over-playing the extent of the factory-sector slowdown. But the wider evidence suggests the outlook for manufacturers is still pretty poor. The fall in the ISM manufacturing index to a 10-year low …
7th October 2019
The slump in the ISM manufacturing index to a decade-low in September together with the fall in the non-manufacturing index to a three-year low triggered renewed fears that the US economy is headed for a recession. (See Chart 1.) But September’s payroll …
4th October 2019
Employment growth easing rather than collapsing The 136,000 increase in non-farm payrolls in September illustrates that while growth in employment (and broader activity) has slowed, it is not collapsing. Otherwise, the employment report was something of a …
The perfect storm of global weakness, trade war and GM strike The slump in the ISM manufacturing index to a decade low of 47.8 in September, from 49.1, will reignite fears that the US economy is headed for a recession. Our guess is that this deterioration …
1st October 2019
The impeachment inquiry launched by the House Democrats against President Donald Trump will dominate the headlines over the coming months. It is unlikely to have any major impact on markets or the economy during that time but, if it clears a path for …
27th September 2019
Consumption growth slowing; equipment investment stagnant The modest rise in personal spending in August suggests that third-quarter consumption growth was weaker than we had previously anticipated, while the durable goods data indicate that business …
Overview – We expect GDP growth to slow from 2.3% this year to 1.4% in 2020, before a more favourable post-election policy mix generates a rebound to 2.0% in 2021. Under those circumstances, we anticipate one final 25bp interest rate cut from the Fed in …
26th September 2019
We estimate that non-farm payrolls increased by a muted 125,000 in September, with the unemployment rate steady at 3.7%. The 130,000 gain in non-farm payrolls in August was flattered by the hiring of 25,000 temporary workers in preparation for next year’s …
Recession risk still elevated Our composite model suggests that the risk of a recession in 12-months’ time has fallen slightly to 17.9%, from above 20% a few weeks ago, as the rebound in the 10-year Treasury yield has reduced the inversion of the yield …
23rd September 2019
With attention focused on the impact of tariffs on goods trade, the recent decline in services exports has gone largely unnoticed. But that has already knocked a few tenths off GDP growth and, with the weakness concentrated in sectors in which the US has …
The Fed voted to cut its key policy rate by another 25bp earlier this week, but it is deeply split over what to do next. Close to one-third of the FOMC is projecting another rate cut before year-end, while close to another third disagreed with this week’s …
20th September 2019
The Fed voted to cut its key policy interest rate by an additional 25bp today, to between 1.75% and 2.00%, but the FOMC is more split than ever over what to do next. Close to one-third of the FOMC is projecting another rate cut before year-end, while …
18th September 2019
The Fed will look through any rise in headline inflation resulting from the recent jump in crude oil prices, but the acceleration in core CPI inflation, to an 11-year high in August, is harder to ignore. (See Chart 1.) Tariffs on Chinese imports explain …
Manufacturing not out of the woods yet The stronger-than-expected 0.6% m/m rebound in industrial production in August, which was driven by manufacturing, suggests that the drag on US producers from weaker global demand may be starting to fade. But the …
17th September 2019
The Fed is almost certain to cut its policy rate by another 25bp at next week’s FOMC meeting to between 1.75% and 2.00%. But rising core inflation, the still-solid incoming activity data and the temporary thaw in the US-China trade war all support our …
13th September 2019
Underlying sales growth slows to more sustainable pace The 0.4% m/m increase in retail sales in August, which was well above the consensus expectation at 0.2% m/m, was helped by a suspicious looking 1.8% m/m increase in motor vehicle sales. Otherwise, …
Core inflation hits 11-year high even before impact of latest tariffs The further rise in core CPI inflation to an 11-year high of 2.4% in August won’t stop the Fed from cutting interest rates again next week, but it does provide further reason to believe …
12th September 2019
President Donald Trump’s call for the Fed to slash interest rates to zero or “less”, so that the Treasury can lock-in low borrowing costs for the very long term, sounds appealing in a sustained low inflation environment. But the evidence from other …
11th September 2019
Fed to deliver widely-expected 25bp cut; data still too strong to justify 50bp We expect a further economic slowdown to prompt a final 25bp cut in December Further significant loosening unlikely in the absence of a recession The Fed looks set for another …
The latest NFIB and JOLT surveys point to a drop in business equipment investment over the rest of the year and provide more evidence that labour market conditions are no longer tightening. The small fall in the NFIB index in August suggests that, in …
10th September 2019
The sharp fall in market interest rates over the past 12 months is starting to support the economy, with activity growth in rate-sensitive sectors like durables consumption and housing rebounding in recent months. With income growth slowing and the …
9th September 2019
In a week of mixed economic data releases, it was the news that the US and China would resume trade talks next month that proved to be the biggest development – pushing the S&P 500 back toward a record high and trimming market expectations for additional …
6th September 2019
Sharp slowdown in private job growth partly offset by temporary census hiring The 130,000 gain in non-farm payroll employment in August was flattered by the hiring of 25,000 temporary workers to help prepare for next year’s census. More generally, there …
