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If 2015 was the year when interest rates didn’t rise as rapidly as most originally expected, then 2016 is likely to be the opposite, with a bigger than expected rebound in inflation forcing the Fed to abandon its gradual pledge. … What to expect in …
18th December 2015
The bigger than expected 0.6% m/m decline in industrial production in November was largely due to a weather-related 4.3% m/m drop in utilities output. Manufacturing output was unchanged last month, which is significantly better than the 0.3% m/m …
16th December 2015
The continued decline in energy prices is still just about keeping a lid on headline CPI inflation, but base effects will drive it up sharply over the next few months and, more importantly, there are now clear signs of an acceleration in core CPI …
15th December 2015
At this stage, it is almost universally expected that, after a seven-year period at near-zero, the Fed will raise interest rates this Wednesday. Like everybody else, we anticipate a 25 basis point increase in the target range for the fed funds rate, …
11th December 2015
The modest 0.2% m/m gain in headline sales in November was partly due to a price-related drop in gasoline station sales and a slight dip in the value of motor vehicle sales, which remain close to a decade high. In contrast, excluding gas, autos and …
At next week’s FOMC meeting, which concludes on 16 th December, the Fed is now almost universally expected to raise the fed funds rate by 25 basis points, to a range of between 0.25% and 0.50%. In the accompanying statement the Fed will stress again that …
9th December 2015
Although we expect GDP growth to be a moderate 2.5% next year, the big surprise will be how quickly inflation rebounds. With domestic price pressures mounting and this year’s deflationary shocks from lower commodity prices and the stronger dollar set to …
8th December 2015
Last week Chair Janet Yellen all but confirmed that the Fed will begin to raise interest rates from near-zero at the upcoming FOMC meeting, which ends on 16 th December. Any final doubts should have been erased by the news that employment increased by a …
4th December 2015
The 211,000 gain in November's non-farm payrolls, along with the 35,000 upward revision to the gains in the preceding two months, would appear to seal an interest rate hike at the Fed's upcoming FOMC meeting, which concludes on the 16 th December. … …
While the decline in the ISM manufacturing index to 48.6 in November, from 50.1, left it at the lowest level since the recession ended in mid-2009, it doesn't mean that the economy is headed for another collapse. Manufacturing is being pummelled by the …
1st December 2015
At first glance, there would appear to be an inconsistency between our forecast that the trade-weighted dollar will increase by a modest 2% next year, while at the same time we also expect short-term interest rates to increase by about 75 basis points …
25th November 2015
October’s personal spending and durable goods data reveal a fairly muted start to activity in the fourth quarter. Real consumption increased by a modest 0.1% m/m last month, while non-defence capital goods shipments (ex-aircraft), which is the main input …
The sharp decline in the Conference Board's measure of consumer confidence to a 14-month low of 90.4 in November, from a revised 99.1, is hard to square with the usual drivers of confidence - gasoline prices are lower, stock markets are up and initial …
24th November 2015
Our econometric model points to a solid 220,000 gain in non-farm payroll employment in November, although we expect the unemployment rate to be unchanged at 5.0%. Base effects mean that even if average hourly earnings increase by 0.3% m/m, the annual …
The 271,000 surge in non-farm payrolls last month puts to rest fears that the earlier slowdown could be the start of a worrying downturn. The decline in the unemployment to 5.0% in October leaves it at the lower bound of the Fed's estimated range for the …
23rd November 2015
The rise in credit spreads this year has been interpreted by some as a signal that the corporate sector is dangerously over-leveraged. At an aggregate level we can find very little evidence of this, however, with any potential problems restricted to a few …
20th November 2015
The 0.2% m/m decline in industrial production in October was mainly due to a weather-related drop in utilities output. Nevertheless, while the 0.4% m/m gain in manufacturing output was encouraging, the broader picture is still that manufacturing is …
17th November 2015
There is now clear evidence of an acceleration in core services price inflation, which hit a six-year high in October. That acceleration has been partly offset by the deflationary impact of the stronger dollar on goods prices. As the impact of the …
Although the Fed expects to raise interest rates only very gradually next year, we suspect that an acceleration in core inflation, thanks in part to a rebound in medical care inflation, will force the Fed into a more aggressive tightening than the markets …
13th November 2015
The rebound in the University of Michigan’s consumer confidence measure to a four-month high of 93.1 in November, from 90.0, presumably reflects the rebound in stock markets and the resilience of labour market conditions. … UoM Consumer Confidence …
The October retail sales report was a little bit weaker than expected, but doesn't change our view that fourth-quarter GDP growth will be a respectable 2.5%. … Retail Sales & Producer Prices …
The rebound in the job openings rate to 3.7% in September, from 3.6%, illustrates that labour market conditions remain robust. September was also only the second month on record that the job openings rate exceeded the job hires rate. … JOLT survey …
12th November 2015
The current level of business investment is not unusually low, with firms opting to use funds to pay dividends or buy back equity instead. Nevertheless, that doesn’t mean the outlook for business investment is encouraging. With the stronger dollar hitting …
6th November 2015
The much bigger than expected 271,000 surge in non-farm payrolls in October confirms that the weakness in August and September was just a temporary blip and, given the circumstances, a December interest rate hike is now the most likely outcome. … …
The big narrowing in the trade deficit in September is encouraging, but that improvement won't last. The dollar’s surge over the next 12 months means that the deficit is likely to widen again and net trade will be modest drag on GDP growth. … Internat'l …
4th November 2015
The Fed’s latest Senior Loan Officer Survey suggests that growth in business investment in equipment will remain muted over the remainder of this year. … Boom in business lending may be …
2nd November 2015
The very modest decline in the ISM manufacturing index, to 50.1 in October from 50.2 in September, illustrates that the strong dollar and weak global demand are still weighing very heavily on the factory sector. Moreover, there is nothing that points to a …
The Fed clearly wanted to signal last week that a rate hike in December was a realistic possibility but, on balance, we still anticipate that it will be delayed until early next year. It’s recently become clear that a couple of Fed Governors, as well as a …
30th October 2015
Our econometric model indicates that non-farm payrolls rose by a stronger 200,000 in October, up from an average monthly gain of 167,000 over the prior three months. Whether that would be sufficient to seal a December rate hike from the Fed is open to …
29th October 2015
The slowdown in GDP growth to 1.5% annualised in the third quarter, from a very strong 3.9% in the second, was mainly due to a big drag from inventories, which subtracted 1.4% points after making a neutral contribution in the previous quarter. The …
The post-FOMC meeting statement released today certainly leaves open the possibility that the Fed will hike interest rates at the next meeting in December. Nevertheless, we still think that the Fed is more likely to wait until early next year. … Fed …
28th October 2015
The 1.2% m/m decline in durable goods orders in September was actually better than we expected, but only because the drag from the notoriously volatile commercial aircraft category wasn't as bad as we feared. The details of the report suggest that …
27th October 2015
The growth rate of our M3 broad money aggregate slowed to 5.0% in September butbank loans are still expanding at a healthy 7.7% clip. … Monetary Indicators Monitor …
26th October 2015
The Treasury’s November 3rd deadline for raising the debt ceiling is getting closer without any sign that Congress is close to a deal to raise the limit. Yields on Treasury bills scheduled to mature in early November have begun to edge higher, but the …
23rd October 2015
It is highly unlikely that the Fed will spring a surprise rate hike at next week's FOMC meeting, which concludes on Wednesday 28th October, and even the odds of a hike at the December meeting have fallen precipitously in recent weeks. We think that the …
22nd October 2015
Our calculations now suggest that GDP growth slowed to only 1.5% annualised in the third quarter. Even after the disappointment of September’s retail sales figures, third-quarter consumption growth was probably still as high as 3.0%. Unfortunately, the …
The decline in the participation rate is almost entirely due to structural factors and there is little prospect of a rebound in the next few years. The downward trend in the participation rate actually began as far back as 2000, driven by the aging of the …
20th October 2015
The likelihood of the Fed hiking interest rates before the end of this year tumbled again last week, as the incoming data triggered some sizeable downgrades to estimates of third-quarter GDP growth. In addition, in a remarkable rebuke to the Chair Janet …
16th October 2015
The 0.2% m/m decline in industrial production in September was a much smaller fall than we were expecting, but it nonetheless illustrates the impact that the stronger dollar is having on manufacturing and the impact that the slump in energy prices is …
The September CPI report suggests that although domestic inflationary pressures are slowly building, the stronger dollar and lower commodity prices will give the Fed an excuse to delay hiking interest rates until early next year. … Consumer Prices …
15th October 2015
The softness of September’s retail sales figures supports our view that the Fed probably isn’t going to hike interest rates until early next year. Our calculations now suggest that third-quarter GDP growth was only 1.7% annualised. … Retail Sales & …
14th October 2015
The big news last week was the announcement of the Trans Pacific Partnership (TPP) trade agreement between the US and 11 other countries, which aims to lower trade barriers and set common commercial standards. Even if the deal is approved by Congress we …
9th October 2015
The huge widening in the trade deficit in August to $48.3bn, from $41.8 bn in July, demonstrates the extent to which deteriorating global growth and the sharp appreciation in the dollar have impacted US external trade. Net external trade will subtract …
6th October 2015
The slowdown in employment growth in August and September will probably delay the first interest rate hike until early 2016, but it doesn’t appear to be the start of a sustained deterioration in labour market conditions. Employment growth should rebound …
5th October 2015
The incoming economic data have been a lot more mixed recently, with the awful performance of exports and manufacturing, both dragged down by the dollar’s strength, now being compounded by a slowdown in employment growth. Although consumption growth could …
2nd October 2015
While it’s always important not to over-react to one single data release, we’ll make an exception in this case. The chances of a rate hike by the Fed this year just went way down. Payroll employment increased by a much weaker than expected 142,000 in …
The decline in the ISM manufacturing index to 50.2 in September from 51.1 in August is yet another illustration of the devastating impact that the strong dollar and weak foreign demand is having on the battered factory sector. Things might well get even …
1st October 2015
Although America’s current account deficit is still a modest 2.4% of GDP, well below the 6.3% peak reached in late 2005, net external debt has more than quadrupled since mid-2007. Liabilities to foreigners now exceed the value of US assets held abroad by …
30th September 2015
The annual growth rate of our M3 money measure accelerated to a five-month high of 5.6% in August, from 5.2%. The growth rates of the narrower M1 and M2 monetary aggregates are even higher. … Monetary Indicators Monitor …
29th September 2015
