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Markets are coming around to the idea that the Fed will raise rates for a second time either next month or in July, but still appear to be unusually sanguine about the prospects of additional rate hikes beyond then. We agree that the Fed will probably …
27th May 2016
Our econometric model points to a solid 170,000 gain in non-farm payrolls in May, but after we allow for the impact of the Verizon strike and other temporary factors, the actual gain in employment was probably as low as 120,000. Under those circumstances, …
26th May 2016
The 3.4% m/m surge in durable goods orders in April was principally due to a 64.9% m/m jump in the notoriously volatile commercial aircraft component, which will probably be reversed in May. Otherwise, capital goods orders and shipments remain unusually …
The minutes of the April FOMC meeting and subsequent comments by various Fed officials have prompted speculation that the Fed could raise interest rates as soon as next month. Treasury yields have rebounded sharply. We always said the June meeting was a …
25th May 2016
Our central theme that the Fed will be forced to raise rates much more aggressively than markets expect continues to unfold. The two deflationary shocks of 2015 – the surge in the dollar and the slump in commodity prices – are fading rapidly. Consumer …
20th May 2016
The 0.4% m/m increase in consumer prices was the biggest gain since February 2013 and reflects primarily a strong rebound in energy prices. More generally, the rebound in commodity prices we’ve seen in recent months suggests that the annual headline …
17th May 2016
While we didn’t think that the more modest 160,000 increase in payroll employment in April necessarily ruled out the possibility of a June rate hike by the Fed, the increasing probability that employment will be even weaker in May probably does. Under …
13th May 2016
The retail sales and consumer confidence reports show that recent claims of the demise of the US consumer have been greatly exaggerated. Thanks to a massive 0.9% m/m gain in control sales in April and a sizeable rebound in motor vehicle sales, it now …
The latest NFIB and JOLT surveys suggest that, contrary to the already reported slowdown in the pace of monthly payroll gains in April, labour market slack is still shrinking. That should eventually generate a marked acceleration in wage growth. … NFIB …
10th May 2016
The incoming data were fairly positive last week. The rebound in the non-manufacturing surveys more than made up for the continuing softness in the manufacturing surveys, while the sharp recovery in motor vehicle sales last month underscores that news of …
6th May 2016
The more modest 160,000 gain in non-farm payrolls in April will have caught a few people out, after all the consensus forecast was as high as 200,000, but the out-turn was broadly in line with our own 170,000 estimate. Employment was never going to …
While the drag on GDP growth from the manufacturing slump may fade in the second half of this year, the sector is unlikely to make any major positive contribution to the economy for some time yet. Nevertheless, with the prospects looking good for a …
5th May 2016
The decline in the trade deficit to a 13-month low of $40.4bn in March, from $47.0bn, was largely due to seasonal distortions created by the shifting date of the New Year holiday in China. … International Trade (Mar.) & Productivity …
4th May 2016
Although the annual growth rate of our own M3 measure was a still muted 3.8% in March, the strength of M2 growth, at 6.2%, and bank loan growth, at 7.8%, underscores that there is nothing in the monetary indicators to suggest the economy is in any danger …
The Fed’s latest Senior Loan Officer Survey (SLOS) underscores that business investment is likely to remain muted for some time yet. In contrast, the consumer outlook is encouraging. … SLOS shows contrast between business and consumer …
2nd May 2016
The modest drop back in the ISM manufacturing index to 50.8 in April, from 51.8, is a bit disappointing, but that April figure is still the second highest reading in the past eight months. At its current level, the index is consistent with GDP growth of …
Some of the headwinds that restricted first-quarter GDP growth to a paltry 0.5% annualised will fade in the second half of this year. But barring a miracle second-quarter rebound, it appears that GDP growth is on course for another underwhelming gain of …
29th April 2016
Our econometric model points to a more modest 170,000 gain in non-farm payrolls in April, with the unemployment rate remaining unchanged at 5.0%. Otherwise, we’ve pencilled in a 0.3% m/m gain in average hourly wages, which would lift the annual rate up to …
28th April 2016
The very modest 0.5% annualised gain in first-quarter GDP, which represents a significant slowdown on the already moderate 1.4% gain in the final quarter of last year, was due to a number of headwinds hitting in the economy. Some of those will fade but, …
As universally expected, the FOMC kept the fed funds target range unchanged at between 0.25% and 0.50% today, but left the door open to a second 25 basis point rate hike in June. With core inflation picking up and global risks diminishing, we still …
27th April 2016
Although the current account deficit remains well below the peak reached in 2006, net external debt has soared to more than 40% of GDP, up from only 10% a decade ago. The external debt burden is still a long way below the levels that triggered currency …
The weakness in non-defence durable goods orders and the dip in consumer confidence do not chang eour view that, after a disappointing first quarter, GDP growth will rebound in the second, helped by a pick-up in consumption growth. … Durable Goods (Mar.) …
26th April 2016
The recent activity data indicate that first-quarter GDP growth slowed to just 0.8% annualised. However, we expect this to prove only a temporary setback rather than the start of a more serious downturn. Employment and incomes have continued to grow at a …
25th April 2016
According to our calculations, economic growth slowed to only 0.8% annualised in the first quarter. (Data due on Thursday). That slowdown doesn’t worry us, however, even though economic growth has been getting progressively weaker since the middle of last …
22nd April 2016
Although we expect the Fed to raise interest rates faster than most anticipate over the next two years, the resulting appreciation of the dollar should be much more modest than last year. Following a massive 10.9% increase in 2015, our forecasts imply a …
20th April 2016
Despite the marked improvement in financial conditions and fading fears over China’s economic outlook, the Fed is very unlikely to raise interest rates at the upcoming FOMC meeting, which concludes on Wednesday 27th April. Nevertheless, we expect the Fed …
Inflation is going to overshoot the Fed’s 2% target, let’s be clear. While we expect Fed officials to be fairly relaxed about that, however, we don’t think it means interest rates won’t rise at all, only that they will remain well below the neutral rate …
19th April 2016
The slowdown in first-quarter real consumption growth is primarily a reflection of the big drop back in motor vehicle sales over the past couple of months. In contrast, domestic motor vehicle production is on track for a sharp increase in the first …
15th April 2016
At first glance, the reported declines in industrial production and consumer confidence suggest the recovery is losing momentum. But the remarkable turnaround in the activity surveys points to a mini manufacturing renaissance soon, while consumer …
The more modest 0.1% m/m increase in March consumer prices, which was below the consensus estimate of a 0.2% m/m gain, was principally because of a 1.1% m/m drop back in clothing prices. … Consumer Prices …
14th April 2016
The most likely outcome of the elections on November 8 th is that Hillary Clinton will be the next President with the Republicans maintaining control of both the House and Senate. But we wouldn’t completely rule out the Democrats gaining control of one or …
13th April 2016
The 0.3% m/m decline in retail sales was slightly weaker than consensus expectations and was mainly due to a 2.1% m/m decline in auto sales. More importantly, while the 0.1% m/m increase in control group sales was on the weak side in March, upward …
If sustained (admittedly a big if), the recent surge in labour force growth would mean that the US economy’s potential growth rate is arguably higher than most economists currently believe. Unfortunately, unless we see a corresponding rebound in labour …
8th April 2016
Thanks to a markedly weaker gain in consumption than we were previously expecting, it now appears that first-quarter GDP growth was no more than 1% annualised. Following on from the 1.4% gain in the final quarter of last year, that suggests the US economy …
7th April 2016
The recent weakness of wage growth over the past few months is partly explained by a deterioration in the quality of jobs being created, which is also reflected in a surge in low-skilled labour force participation. … Strength of low-paid hiring may be …
The widening in the trade deficit to a six-month high of $47.1bn in February, from $45.9bn, means that net exports will be a drag on first-quarter GDP growth, which we now think was around 1.5% annualised. … Internat’l Trade (Feb.) & ISM Non-Manu. …
5th April 2016
The revelation last week that spending in January was much weaker than initially thought, coupled with the modest increase in February, means that real consumption growth probably slowed to around 2.0% annualised in the first quarter, from 2.4% in the …
1st April 2016
The 215,000 gain in non-farm payroll employment in March highlights once again that, even though GDP growth has been underwhelming over the past six months, the labour market remains unusually strong. … Employment Report …
The recent surge in labour force participation has been concentrated among low-skilled workers, which may be artificially depressing average hourly earnings. But with this trend unlikely to last and the unemployment rate close to its natural level, we …
31st March 2016
We are not overly concerned by the slowdown in the annual growth rate of our broad M3 money measure to a five-year low of 3.5% in February, particularly not when bank loans are still expanding at more than 8% per year. … Monetary Indicators Monitor …
30th March 2016
The 11.5% decline in corporate profits last year, which included a 7.8% decline in the fourth quarter alone, doesn’t necessarily mean that a recession is imminent. Admittedly, profits usually begin to decline in the latter stages of the economic cycle, …
29th March 2016
The rebound in the Conference Board measure of consumer confidence to 96.2 in March, from 94.0, suggests that the rebound in stock markets more than offset the impact of higher gasoline prices in recent weeks. It also supports our view that the apparent …
It is becoming increasingly apparent that many Fed officials are underestimating the degree to which inflation will rise in the second half of the year. Fed officials expect core PCE inflation will fall back to 1.6% by the fourth quarter, but it remained …
28th March 2016
The downward revision to the Fed’s interest rate projections at the March FOMC meeting, despite little change in the economic projections, has prompted plenty of speculation that its “reaction function” has shifted. We’re sceptical that the Fed is now …
24th March 2016
The 2.8% m/m decline in headline durable goods orders in February was partly due to a slump in the volatile commercial aircraft category. But even allowing for that, the details of the report suggest that equipment investment remained muted in the first …
Our econometric model points to a 180,000 gain in non-farm payrolls in March. We estimate that the unemployment rate was unchanged at 4.9%. Otherwise, we’ve pencilled in a 0.4% m/m gain in average hourly wages, but base effects mean that the annual rate …
Last week’s weaker than expected data on retail sales and the drop in utilities production in February suggest that real consumption growth has started the year on a softer footing than initially believed. Nevertheless, the apparent weakness in …
18th March 2016
The decline in the University of Michigan’s measure of consumer confidence to 90.0 in March, from 91.7, illustrates that higher gasoline prices more than offset the positive impact to sentiment from the rebound in stock markets. … UoM Consumer …
The Fed opted to leave its key policy rate unchanged at 0.25% to 0.50% today, while also lowering its projections for the pace of future rate hikes. Nevertheless, as inflation continues to rise and global risks diminish further, we expect the Fed will …
16th March 2016
Despite lower gasoline prices weighing on headline CPI inflation, the much bigger story is the surge in core inflation to a four-year high of 2.3% in February, which illustrates that the Fed can’t stay on the sidelines for much longer. … Consumer Prices …
