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Rebound in confidence driven by political change The small rebound in the University of Michigan consumer sentiment index in August was entirely driven by recent political developments, and still leaves it below its level for most of this year. At face …
16th August 2024
Temporary disruptions hit IP The fall in manufacturing output in July was entirely driven by temporary disruptions which should reverse this month. Excluding those temporary factors, this is a strong report which, together with last month’s solid gain in …
15th August 2024
Don’t bet against the American consumer There was almost nothing in the July retail sales report for the perma-bears to latch on to, with the rebound in retail sales led by a recovery in vehicle sales, but encouragingly broad-based with control group …
CPI consistent with a 25bp rate cut rather than 50bp The 0.15% m/m increase in all-items CPI and the 0.17% increase in core CPI in July suggest that, after the temporary relapse in the first quarter, the disinflationary trend has firmly reasserted …
14th August 2024
Muted PPI is more good data The muted 0.1% m/m increase in final demand PPI and unchanged core PPI for July is not quite as good as it looks, but it is nevertheless consistent with the Fed’s preferred core PCE prices measure increasing at a below-2% …
13th August 2024
Economy still nowhere near recession In purely mechanical terms, the limited data released this week did trigger a downward revision to our third-quarter GDP growth forecast to 1.7%, from 2.0%. But only because the June trade data sets up for a slightly …
9th August 2024
Domestic demand remains intact There was little sign of weakening domestic demand in the international trade data for June, with imports rising. Exports rose even more sharply, causing the trade deficit to narrow, although the forward-looking indicators …
6th August 2024
Despite the weakness of the latest labour market data, we judge that a soft landing is still the most likely outcome for the economy. Nonetheless, the risk of a hard landing has increased, while the disorderly market reaction – if sustained – could prompt …
5th August 2024
Rise in ISM services index should soothe recession fears The rebound in the ISM services index to 51.4 isn’t much to get excited about given it remains weak, but the corresponding increase in the employment index should soothe concerns that the labour …
Labour market cracks raise risk of hard landing Things went from bad to worse after the Fed’s policy announcement mid-week, with the data on Thursday revealing a further fall in the ISM manufacturing index and a rise in initial jobless claims to a near …
2nd August 2024
Soft landing in doubt as labour market cracks The sharp slowdown in payrolls in July and sharper rise in the unemployment rate makes a September interest rate cut inevitable and will increase speculation that the Fed will kick off its loosening cycle with …
Manufacturing struggling for momentum The further decline in the ISM manufacturing index in July raises the risk that GDP growth will lose momentum in the third quarter, and the plunge in the employment index will add to concerns that the Fed has left it …
1st August 2024
Fed lays the groundwork for September rate cut There was no surprise rate cut from the Fed today, with the fed funds target range left unchanged at between 5.25% and 5.50%, but the changes in the accompanying statement – which included a shift from a …
31st July 2024
Fed lays groundwork for September rate cut There was no surprise rate cut from the Fed today, with the fed funds target range left unchanged at between 5.25% and 5.50%, but the changes in the accompanying statement – which included a shift from a …
If implemented in full on day one, Donald Trump’s trade, immigration and fiscal policies would together be stagflationary. We suspect that he will be forced to water down his plans, however, and it could take some time to implement them. The upshot is …
Business bankruptcies rose further in the first half of 2024, mainly due to higher Chapter 11 filings as firms were forced to restructure their debts. It is typically the change in borrowing costs that matters most for Chapter 11 bankruptcies, however, …
Slowdown in wage growth another reason for Fed to cut rates The further slowdown in wage growth evident in the second-quarter employment cost index data won’t be enough to prompt a surprise rate cut from the Fed later today, but it does strengthen the …
The JOLTS labour market data for June will do little to change the Fed’s assessment of labour market conditions ahead of its policy announcement tomorrow, with slack continuing to grow gradually and clearer signs of an easing in wage pressures. With JOLTS …
30th July 2024
In detailed analysis last year, we concluded that equilibrium nominal interest rates would settle at between 3% and 4% in advanced economies in the next ten years. We maintain that opinion and in fact some of the forces boosting equilibrium rates seem to …
GDP growth not quite as rosy as it seemed The acceleration in GDP growth to 2.8% annualised in the second quarter, from 1.4%, was stronger than the consensus estimate of 2.0% but not a big surprise given the Atlanta Fed GDPNow was pointing to a 2.6% gain …
26th July 2024
Core PCE inflation data strengthen case for September rate cut Core PCE prices increased by 0.18% m/m in June, largely as expected and, although May's increase was revised up slightly to 0.13%, from 0.08%, that still means inflation has been running at a …
We expect a softer 170,000 rise in non-farm payrolls in July, alongside a more substantial easing in wage growth. The 206,000 rise in non-farm payrolls in June beat expectations, but the accompanying details were disappointing. April and May’s figures …
25th July 2024
Stronger-than-expected growth unlikely to prevent September rate cut The sharper-than-expected pick-up in second-quarter GDP growth to 2.8% annualised should make the Fed a bit more comfortable about keeping policy unchanged next week, but the recent …
Disinflationary trend broadening out Fed officials growing more concerned about labour market downside risks Interest rate cut likely in September With the disinflationary trend broadening out and the unemployment rate rising, recent comments from Fed …
24th July 2024
The recent set of mild inflation data and growing concerns among Fed officials about downside risks to the labour market reinforce our view that the first interest rate cut will come in September. We forecast that core PCE inflation will return to the 2% …
22nd July 2024
After his disastrous debate performance, President Joe Biden has dropped out of the race to be re-elected in this November’s election. His withdrawal letter acknowledges Vice President Kamala Harris as “an extraordinary partner in all this” and, in a …
21st July 2024
Shelter disinflation adds to case for September rate cut Fed officials back September rate cut In comments ahead of the pre-July FOMC blackout that begins this weekend, Fed officials appeared open to a September rate cut. On Monday, Chair Jerome Powell …
19th July 2024
Manufacturing sector bucking negative tone of the surveys The rise in manufacturing output in June was better than we expected based on the small fall in hours worked, but it owed a lot to a rebound in motor vehicle production, which seems unlikely to be …
17th July 2024
Strong control group sales ease fears of consumer slump Although retail sales were unchanged in June, the strong 0.9% m/m rise in control group sales should ease concerns about the plight of the consumer in the wake of the renewed slump in sentiment. …
16th July 2024
"More good data" needed There were mixed messages from Fed Chair Jerome Powell this week in his semi-annual testimony to Congress. Powell said in his opening remarks that the “economy continues to expand at a solid pace” and the unemployment rate is …
12th July 2024
More evidence of consumers struggling The further decline in the University of Michigan consumer sentiment index in July adds to the evidence that consumers are increasingly struggling with high interest rates. Although the link between confidence and …
PPI a lot better than it looks Ignore the fact that core PPI increased by a slightly bigger-than-expected 0.4% m/m in June and that May was revised to a 0.3% rise from unchanged. The PPI components that feed into the Fed’s preferred PCE deflator inflation …
It is not clear that Donald Trump, if elected, would gain much from trying to force Fed Chair Jerome Powell out of the role only a year before his term expires anyway. Trump might instead focus his efforts on securing Senate approval for future …
11th July 2024
CPI qualifies as ‘more good data’ The muted 0.1% m/m increase in core CPI in June strengthens the case for a September rate cut although, while a lot still depends on the PPI data due tomorrow, our initial estimate is that the core PCE deflator increased …
Powell leaves all options open Fed Chair Jerome Powell’s opening statement for his congressional testimony today offers few clues about the potential timing of interest rate cuts, with the key line that the Fed is still looking for “more good data” to …
9th July 2024
Trump now has clear lead Trump favourite to beat whomever Democrats pick Following Joe Biden’s disastrous debate performance, which appears to have hit his polling numbers and gone down badly with big donors, there is clearly now a good chance that he …
5th July 2024
Payrolls beats, but rest of report adds to concerns Although the 206,000 gain in non-farm payrolls in June beat the consensus at 190,000, this was more broadly a disappointing report when we factor in the 111,000 downward revision to past months and the …
Following his disastrous debate performance last week, President Joe Biden’s odds of getting re-elected have gone from bad to worse. Former President Donald Trump is now unequivocally the favourite to win this November, even if the Democrats replace Biden …
3rd July 2024
Minutes feel dated given subsequent signs of economic slowdown The minutes of the Fed’s mid-June policy meeting reveal that, not surprisingly given the split in the interest rate projections released at that time, officials were split on the outlook for …
Surveys consistent with softer growth and inflation The decline in the ISM services index to 48.8 in June, from 53.8, takes it to its lowest since the lockdowns in 2020. Alongside a decline in the ISM manufacturing index, these surveys suggest that GDP …
External trade continues to drag on GDP growth The trade deficit widened slightly to $75.1bn in May, from $74.5bn, as exports fell by 0.7% m/m, outpacing a 0.3% m/m decline in imports. Nevertheless, the decline in exports was more modest than the advance …
The rebound in residential investment over the past year will go into reverse in Q2, as housing starts and home sales slump again. We expect this weakness to persist thanks to a coming slump in new multi-family construction, which will soon gradually feed …
2nd July 2024
Despite the modest rise in job openings in May, the big picture remains that labour market conditions continue to slowly normalise, and the low quits rate still points to a sharp slowdown in wage growth. After the sharp fall in April, the marginal rise in …
More signs that the economy is struggling for momentum The ISM manufacturing index was little changed in June, leaving it consistent at face value with a small fall in GDP. While the ISM has not been a good leading indicator of GDP growth in recent years, …
1st July 2024
Biden debate woes leave Trump ahead Trump’s conviction vs Biden’s lack of conviction Joe Biden’s faltering debate performance leaves Donald Trump as the narrow favourite to win this November’s presidential election. There isn’t an alternative Democratic …
28th June 2024
Inflation fading, consumers faltering The core PCE deflator increased by only 0.08% m/m in May and, even allowing for some modest upward revisions to the gains in earlier months, that was enough to pull the annual core inflation rate down to 2.57%, from …
We expect a 200,000 increase in non-farm payrolls in June. The unemployment rate probably edged back down to 3.9%, while we expect a renewed slowdown in wage growth. The reacceleration in non-farm payroll growth to 272,000 in May was at odds with other …
27th June 2024
Durable Goods & Advance Economic Indicators (May 2024) The small fall in core orders and larger fall in underlying capital goods shipments leaves prospects for second quarter business equipment investment weaker than we had expected. The 0.1% m/m rise in …
Overview – We expect core inflation to be back to the 2% target by early next year, allowing the Fed to begin cutting interest rates from this September. GDP growth will remain a little lacklustre this year but, as the shift in monetary policy begins to …
25th June 2024
A return of President Trump to the White House would be a shot across the bows for global efforts to reduce emissions – particularly as he would almost certainly withdraw the US from the Paris Agreement again . But while he could deal another blow to the …
