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The recent flattening of the Treasury yield curve appears to have been driven partly by structural forces, but this time is rarely different and when the yield curve inverts, an economic slowdown usually follows. We expect both to happen next year. … Is …
16th July 2018
Although underlying retail sales disappointed in June, upward revisions to earlier months mean that real consumption growth still appears to have accelerated to a healthy 3% annualised in the second quarter. We expect that strength to continue into the …
The financial markets will have one eye on President Donald Trump’s summit with Russian President Vladimir Putin next week, but Fed Chair Jerome Powell’s semi-annual congressional testimony is likely to take centre stage. Powell, who has been a revelation …
13th July 2018
The continued upward trend in core CPI inflation, which rose from 2.2% to 2.3% in June, keeps the Fed on track to raise interest rates twice more this year. … Consumer Prices …
12th July 2018
Even though the tariffs actually imposed up to now are relatively small in comparison to overall trade flows and GDP, it is hard to see how a full-blown trade war can be avoided at this stage. There is no-one left in the administration or in Congress to …
11th July 2018
President Donald Trump would probably struggle to pull the US out of the WTO on his own. But unless Congress starts taking a tougher stance against his protectionist urges, the continued use of tariffs justified on national security grounds could …
The NFIB survey and JOLTS figures released today show that labour market conditions are still tightening. … NFIB & JOLT surveys point to rising cost …
10th July 2018
The rush by US exporters to beat the imposition of retaliatory tariffs on soybeans by China will provide an artificial boost to second-quarter GDP growth, but will become a potentially significant drag in the third quarter. … Soybean tariffs causing …
9th July 2018
Activity is booming, with employment up by more than 200,000 again in June and second-quarter GDP growth apparently close to 4% annualised. But, alongside the recently imposed tariffs, strong activity is adding to price pressures, particularly in some …
6th July 2018
The 213,000 gain in non-farm payrolls in June, which followed an even stronger 244,000 rise in May, provides further evidence that uncertainty over trade policy isn’t yet having a major impact on the economy. It also leaves the Fed firmly on track to …
Applying tariffs on auto imports would represent the biggest escalation of protectionism so far. Even though the direct impact would be small, boosting the price level by 1% point or so and triggering a slump in new car sales, it may have a much larger …
5th July 2018
The monetary data reveal a sharp slowdown in M1 growth in May, to its weakest pace since early 2016. But this isn’t a serious concern. Our measure of M3 broad money continued to expand at a decent rate, while bank lending growth looks set to accelerate …
The increase in the ISM manufacturing index in June is a clear sign that, for now at least, the strength of the domestic economy is more than offsetting any increased uncertainty on trade policy . However, with the dollar appreciating by 6% since April, …
2nd July 2018
Concerns over trade policy weighed on the markets this week, with only a brief respite from President Donald Trump’s last-minute decision to cancel the planned announcement of new investment restrictions on Chinese firms. But the latest data suggest that …
29th June 2018
We estimate that growth in non-farm payroll employment slowed to 180,000 in June. The unemployment rate probably held steady at 3.8%, but we suspect that annual wage growth rose further, a trend that looks set to continue. … Employment growth set to …
28th June 2018
The decline in both headline and core durable goods orders in May indicates that growth in business equipment investment remained close to 5% annualised in the second quarter, much weaker than the growth rates seen in the second half of last year. …
27th June 2018
After a disappointing first quarter, our calculations suggest that annualised GDP growth will rebound to more than 4% in the second quarter, driven by a big turnaround in consumption growth. Even assuming a slowdown in June, underlying retail sales are on …
26th June 2018
Trade tensions have escalated faster and further than we had originally anticipated, capped this week by President Trump’s threat to apply a 10% tariff to $200bn of imports from China. We still think that protectionism alone is unlikely to kill the …
22nd June 2018
The recent drop in airfare inflation has been a small drag on core inflation and, unlike last year’s fall in wireless telephone service prices, appears to be a genuine measurement problem. Underlying price pressures are still building throughout the …
21st June 2018
Fuelled by the fiscal stimulus, we expect GDP growth to be 2.9% this year but, as the stimulus fades and higher interest rates become a bigger drag on the economy, growth should slow to 2.0% in 2019 and only 1.3% in 2020. In that scenario, we expect the …
After the Fed’s decision to raise interest rates by another 25bp, Fed Chair Jerome Powell claimed in the post-meeting press conference that “the economy is doing very well” – we couldn’t agree more. That view was bolstered by May’s retail sales figures, …
15th June 2018
The strong survey evidence suggests that the drop in manufacturing output in May was a blip, but the tariffs imposed on Chinese imports, if reciprocated, could weigh on the factory sector later this year. … Industrial Production …
Households are back to their free spending ways, with the strength of May’s retail sales figures implying that second-quarter real consumption growth (and GDP growth for that matter) will now be more than 4% annualised. With the benefit of the tax cuts, …
14th June 2018
The Fed delivered another 25bp hike in its fed funds target range to between 1.75% and 2.00% today and the updated interest rate projections show that officials now anticipate an additional two 25bp hikes this year (up from one hike in the March …
13th June 2018
We expect rising interest rates to cause economic growth to slow sharply next year, especially as the boost from fiscal stimulus fades. Our best judgement is that there’s a 30% chance of a mild recession before the end of the decade, but the risks would …
12th June 2018
The increase in headline inflation to a six-year high of 2.8% in May is partly due to the rally in energy prices, but it is also reflects another solid monthly gain in core CPI, which will keep the Fed on course to raise interest rates tomorrow. We expect …
Growth in the narrow monetary aggregates slowed further in April, but there is still little to suggest that this is having much of an impact on the wider economy. Our measure of M3 growth has held up well, while bank lending growth has continued to …
11th June 2018
America’s isolation on trade policy, which will be on full show at this weekend’s G7 summit in Canada, raises the (admittedly still small) risks of a worst-case scenario in which the US tears up NAFTA or launches an all-out trade war with China. Such an …
8th June 2018
Despite political tensions in Europe and the uncertainty over trade policy, we expect the Fed to press ahead and raise interest rates at next week’s FOMC meeting. With second quarter GDP growth tracking at between 3.5% and 4.0% annualised and signs that …
6th June 2018
The April trade data suggest that net exports are on track to provide a sizeable boost to second quarter GDP growth, which we now expect to be as high as 4% annualised. … International Trade …
Despite the sharp rebound in core inflation this year, there seems to be a growing belief in the markets that the Fed is now prepared to allow inflation to rise above the 2% target without stepping up the pace of rate hikes. After all, the FOMC has …
1st June 2018
The rebound in the ISM manufacturing index in May provides further evidence to suggest that GDP growth is set for a decent rebound in the second quarter. On past form, the ISM index is at a level consistent with growth of more than 4% annualised, although …
May’s employment report had everything needed to support a June rate hike by the Fed; including a solid 223,000 gain in payrolls, a decline in the unemployment rate to an 18-year low of 3.8% and a healthy 0.3% m/m rise in average hourly earnings. … …
We still expect that domestic economic conditions will prompt the Fed to hike its policy rate a further three times this year and twice in the first half of next year. But that view is based on the assumptions that the Italian situation doesn’t descend …
30th May 2018
The rally in crude oil prices in recent months ought to be a negative for a net oil importer like the US, but we don’t expect the increase, up to now at least, to prevent an acceleration in GDP growth this year. Even if prices rise further over the coming …
25th May 2018
Despite the rise in underlying durable goods orders in April, the slowdown in business equipment investment in the first quarter appears to have carried over into the second quarter, with little evidence that the recent corporate tax cuts have provided a …
We expect a 190,000 gain in non-farm payrolls in May, with the unemployment rate holding steady at 3.9% and wage growth picking up. That would leave the Fed on track to raise rates again in June. … Strong payrolls to keep Fed on track for June rate …
24th May 2018
The deal the US has apparently reached with China averts a full-blown trade war and provides another example of the administration backing down from tough rhetoric on trade in return for relatively minor concessions. To the extent that China does purchase …
23rd May 2018
The recent rebound in inflation expectations is significant not only because it provides another reason to expect core inflation to trend higher this year, but also because it further weakens the case of those Fed officials arguing against additional rate …
22nd May 2018
Households’ balance sheets are still in good shape, with debt burdens stabilising well below their pre-crisis levels and delinquencies low. However, the further rise in newly delinquent credit card debt appears to be an early sign that the recent surge in …
21st May 2018
Higher market interest rates will undoubtedly act as a drag on household spending and business investment, offsetting some of the temporary boost from fiscal stimulus. We expect that will eventually prompt a marked slowdown in GDP growth, albeit probably …
18th May 2018
The continued surge in market interest rates will become an increasing headwind for the economy, especially next year when the boost from fiscal stimulus fades. Admittedly, the level of interest rates remains low by historical standards. But the change …
17th May 2018
The 0.7% m/m rise in industrial production in April was driven by a strong gain in manufacturing output and provides more evidence that activity is expanding at a faster pace in the second quarter. … Industrial Production …
16th May 2018
Although headline retail sales rose at a weaker pace in April, growth in underlying sales remained strong and past months’ gains were revised higher, which supports our view that the weakness in first-quarter consumption growth was temporary. Even …
15th May 2018
The job opening and labour turnover report and NFIB survey released this week suggest that labour market conditions continue to tighten and point to wage pressures rising further this year. We still expect stronger wage growth this year to push core …
11th May 2018
The continued strength of the University of Michigan consumer confidence index in May doesn’t offer much encouragement as confidence has been a poor guide to spending in recent times. Nonetheless, there are plenty of other reasons to expect consumption …
The 3.0% m/m rise in gasoline prices pushed headline inflation to a 14-month high of 2.5% in April, but the more muted 0.1% m/m gain in core CPI suggests that the surge in underlying inflation in the first few months of the year has faded. Even so, we …
10th May 2018
We learned this week that core PCE inflation reached 1.9% in March, within a whisker of the Fed’s 2% target, and we think it has further to rise over the rest of this year. We expect a gradual pick-up in labour cost growth, the past depreciation of the …
4th May 2018
With the unemployment rate hitting an 18-year low of only 3.9% in April, the Fed is still going to push ahead and raise rates again in June, even though average hourly earnings growth remained muted. … Employment Report …
The sharp decline in the nominal trade deficit to a six-month low of $49.0bn in March, from $57.7bn in February, was driven by an encouraging rise in exports. The data imply that net trade was broadly neutral for GDP growth in the first quarter and we …
3rd May 2018
