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The Fed was never likely to signal a major shift in policy at the conclusion of the FOMC meeting today, with the fed funds target range left unchanged at 1.5% to 1.75% and the accompanying statement little different from the one issued in March. …
2nd May 2018
The fall in the ISM manufacturing index to 57.3 in April, from 59.3 in March, was worse than the consensus forecast and echoes the weaker tone of some of the early regional surveys. Nonetheless, on past form, it remains consistent with annual GDP growth …
1st May 2018
The reduction of the Fed’s balance sheet continued to weigh on the narrow monetary aggregates in March, but this is unlikely to prove a major drag on the economy. Our measure of M3 shows that broad money growth remains healthy, while bank lending growth …
The rebound in core PCE inflation over recent months in part reflects sharp increases in administered payments for hospital services that will be repeated later this year. A revival in healthcare inflation comes at exactly the wrong time for the Fed, with …
30th April 2018
The further rise in 10-year Treasury yields to their highest level since 2011 dominated the markets this week and there are signs that the Fed’s policy tightening is starting to feed through to the wider economy, with the borrowing costs faced by …
27th April 2018
The slowdown in GDP growth to 2.3% annualised in the first quarter, from 2.9% in the final quarter of last year, was a slight disappointment since the tax cuts should have provided an immediate boost. Nevertheless, given that the economy has repeatedly …
We estimate that payroll employment growth rebounded to 175,000 in April but, more importantly for the Fed, average hourly earnings growth appears to be accelerating. … Wage pressures …
26th April 2018
The gain in durable goods orders in March was entirely due to a surge in aircraft orders whereas underlying orders and shipments declined. That points to a sharp slowdown in business equipment investment in the first quarter, just as the corporate tax …
The opioid crisis is still costing lives and devastating communities, but its impact on the labour market is at least beginning to fade. The sharp fall in prescription rates last year suggests that the recent decline in disability – and the related …
25th April 2018
The Fed is unlikely to make any policy changes at next week’s FOMC meeting. But with signs that underlying inflationary pressures are continuing to build, officials may use the post-meeting statement to hint that they will step up the pace of tightening …
The weakness of real consumption growth, which appears to have slowed to only 1% annualised in the first quarter, suggests that the recent tax cuts have so far failed to provide any meaningful boost to activity. After many months of anticipation, there …
20th April 2018
The apparent slowdown in economic growth in the first quarter, to between 2.0% and 2.5% annualised, is likely to be reversed as the boost from the recent fiscal stimulus outweighs any hit from escalating trade tensions. Admittedly, the recent survey …
18th April 2018
The 0.5% increase in industrial production in March, following the upwardly revised gain of 1.0% in February, suggests that the factory sector is still in good health, although manufacturing output growth slowed in the first quarter overall. Assuming that …
17th April 2018
Despite the stronger 0.4% m/m gain in underlying retail sales in March, real consumption growth looks to have slowed to around 1% annualised in the first quarter. Nonetheless, with incomes boosted by the recent tax cuts and a strong labour market, the …
16th April 2018
Although it fell in April, the University of Michigan consumer confidence index remains at a high level by past standards and suggests that the slowdown in spending growth at the start of this year will prove to be a blip. The past relationship hasn’t …
13th April 2018
Labour productivity growth picked up in 2017 and we suspect that it will rebound a little further over the next couple of years, as rising capacity constraints and the tightening labour market encourage a new wave of capital deepening. But a more …
China’s holdings of Treasury securities, which currently stand at almost $1.2trn equivalent to 8.2% of the total outstanding, offer it little leverage in the current trade spat with the US. Dumping those securities would, in theory, push up the Federal …
12th April 2018
The rebound in core CPI inflation to a 13-month high of 2.1% in March, from 1.8%, was partly driven by base effects. But the recent strengthening of monthly price pressures suggests that core inflation will continue to trend higher this year. … Consumer …
11th April 2018
The latest NFIB survey suggests the recent tax cuts aren’t providing much support to investment. But along with the March PPI data, it also provides further evidence that inflationary pressures are building. … NFIB survey reveals rising cost …
10th April 2018
The latest CBO projections suggest that the recent fiscal stimulus will push the Federal budget deficit up to 5% of GDP soon. Moreover, there are reasons to expect the actual outcome could be even worse because those projections are made under current …
9th April 2018
The escalating threats over tariffs between the US and China have dominated the headlines this week. But next week could bring the more positive news of a ‘preliminary’ deal on NAFTA. Reports suggest that any agreement would be limited to content …
6th April 2018
The modest 103,000 gain in payroll employment in March, which follows a massive 326,000 gain in February, is a good illustration of the inherent volatility in the non-farm payroll data. The March gain was the worst in six months. The February gain was the …
The widening in the trade deficit to a near-decade high of $57.6bn in February, from $56.7bn, was entirely due to a one-off royalty payment for broadcasting rights to the Winter Olympics. But net trade is still on course to have subtracted from …
5th April 2018
The speed and scale of China’s retaliation to the proposed US tariffs represents a significant escalation of tensions, though there is still plenty of time for a deal to be struck before tariffs come into effect. The risk is that President Donald Trump …
4th April 2018
The small decline in the ISM manufacturing index in March, together with the weaker incoming activity data, will add to worries that the economy is slowing. But the index is still at a level consistent with economic growth accelerating to more than 4% …
2nd April 2018
Although the annual core PCE inflation rate only edged higher to 1.6% in February there is now a good chance that base effects will push it up to 2.0% in March, leaving it in line with the Fed’s target. … Core PCE inflation to hit 2% very …
29th March 2018
The incoming activity data suggest that GDP growth slowed from an upwardly-revised 2.9% annualised in the fourth quarter to 2.0% or so in the first quarter. That would still be slightly above the economy’s potential growth rate, but the details show that …
We estimate that payroll employment expanded by 250,000 in March, as the disruption from the recent flu epidemic faded. That should push the unemployment rate down to 4.0%, an 18-year low. … Blockbuster first quarter for …
The gradual contraction of the Fed’s balance sheet is now starting to weigh on the monetary aggregates. Nonetheless, there are good reasons to expect bank lending growth to rebound soon. … Monetary Indicators Monitor …
28th March 2018
The small decline in the Conference Board measure of consumer confidence in March from an 18-year high in February leaves the index still well above its historical average. The relationship between confidence and spending growth has broken down in the …
27th March 2018
During his first post-meeting press conference, Fed Chair Jerome Powell managed to signal faster rate hikes over the coming years while simultaneously calming the bond market by playing down the risks of a pick-up in inflation. The problem is that the Fed …
23rd March 2018
The strong rise in durable goods orders in February was flattered by a rebound in transport orders, but the details showed an encouraging rebound in underlying capital goods orders. That suggests the apparent slowdown in business equipment investment in …
The tariffs on Chinese imports outlined by President Donald Trump today won’t have a huge impact on the economy even if implemented in full, and we suspect they will end up being watered down. But as the market reaction today highlights, there is a clear …
22nd March 2018
The Fed’s decision to raise interest rates by 25bp today was widely expected but some investors may have been caught off-guard by the degree to which Fed officials increased their projections for future interest rate hikes. The median forecast for the fed …
21st March 2018
The latest data indicate that GDP growth was no more than 2.5% annualised in the first quarter, with real consumption growth slowing to around 2%. That would hardly be a disaster, but is disappointing given the boost to disposable incomes from the recent …
The surge in job growth in February, which was fuelled by a rise in new entrants to the labour force, supports the doves’ view that there is still hidden slack in the labour market. But the story isn’t quite that straightforward. Almost all of the …
16th March 2018
The strong rebound in industrial production in February was driven by an even larger gain in manufacturing output, and illustrates that the softer start to the year was just a blip. Meanwhile, the rise in the University of Michigan consumer confidence …
With the benefits of the fiscal stimulus, strong global demand and the weaker dollar, we expect GDP growth to accelerate to 2.8% in 2018. As the fiscal stimulus begins to wear off and the cumulative monetary tightening starts to bite, however, GDP growth …
15th March 2018
The rebound in inflation, rapid employment growth and the recently announced boost to Federal spending for the next two years should convince the Fed to raise rates by 25bp at Jerome Powell’s first FOMC meeting as Chair. We expect the Fed’s updated …
14th March 2018
The 0.1% m/m drop in headline retail sales in February was partly driven by weakness in autos and a price-related drop back in gasoline sales, but underlying sales were nevertheless subdued and suggest that real consumption growth slowed in the first …
Core consumer prices increased by a solid 0.2% m/m in February, extending the run of firmer monthly gains and pushing the three-month annualised core inflation rate up to a decade high of 3.1%. Admittedly, the 12-month annual core inflation rate was …
13th March 2018
Following the move this week to impose tariffs on imports of steel and aluminium, the widening in the trade deficit to a nine-year high in January is likely to have bolstered President Donald Trump’s protectionist instincts. The rise in the deficit has …
9th March 2018
The massive 313,000 increase in non-farm payrolls in February, the biggest in 18 months, together with the 54,000 upward revision to gains in the preceding two months, illustrates that the economy is doing much better than the incoming activity data have …
Developments over the past couple of weeks suggest that President Donald Trump might finally be following through on the protectionist threats he made during the election campaign. The measures announced so far, even including the proposed steel tariffs, …
7th March 2018
The increase in the trade deficit to a nine-year high of $56.6bn in January, from $53.9bn, suggests that net trade will once again be a drag on economic growth in the first quarter, and will only add fuel to President Donald Trump’s protectionist rhetoric …
The reduction in the Fed’s balance sheet has begun to gather pace but is still having next to no impact on the monetary aggregates, suggesting that the effect on the broader economy will also be small. … Monetary Indicators Monitor …
6th March 2018
Following a decade when productivity growth averaged barely 1% per year, we anticipate a modest acceleration to 1.5% over the next few years, principally because the low unemployment rate, rising capacity utilisation and the recent tax changes will drive …
5th March 2018
Our long-held belief that a rebound in core inflation and faster economic growth, partly due to fiscal stimulus, would prompt the Fed to hike interest rates four times this year is rapidly becoming the consensus view. In his congressional testimony …
2nd March 2018
President Donald Trump’s announcement today that the US will impose major new tariffs on steel and aluminium imports didn’t come as a huge surprise, since the Commerce Department’s recent 232 report concluded that those imports posed a threat to national …
1st March 2018
The rise in the ISM manufacturing index in February to a 13-year high suggests that activity growth is set to pick up following a soft start to the year. On past form, the index is consistent with real GDP growth of more than 5% annualised. … ISM …
