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The recent surge in Treasury yields is unlikely to develop into a 1994-style bond collapse, principally because the outlook for monetary policy is completely different. Furthermore, for those worried that the recent rise in long-term interest rates will …
24th June 2013
The markets may have overreacted a bit to the details of the Fed’s QE3 tapering timetable and the prospect of the first interest rate hike taking place in two years’ time. Nonetheless, the growing likelihood that rates will be raised a little earlier than …
We doubt that the rapid rise in long-term interest rates in recent weeks will derail the economic recovery. For a start, rates are still at unusually low levels. Moreover, the primary reason why the Fed is now considering tapering its monthly asset …
20th June 2013
In most advanced western economies the supply of labour is likely to be boosted by a rise in labour market participation during the coming year or two. This should help to prevent wage inflation picking up and thereby support the case for continued loose …
19th June 2013
Thanks to some unfavourable base effects, the annual rate of headline CPI inflation rebounded to 1.4% in May, from 1.1%, even though prices increased by only 0.1% m/m last month specifically. Nevertheless, inflation is still well below the Fed's 2% …
18th June 2013
Broad money growth has remained stable since late last year, with our measure of the M3 aggregate expanding by 6.2% over the 12 months to May. … Monetary Indicators Monitor …
17th June 2013
The sharp drop in State and Local (S&L) government investment has had a smaller adverse impact on the unemployment rate than might have been expected. The ongoing fiscal consolidation may therefore constrain GDP growth by more than jobs growth. … Labour …
It now appears that GDP growth will slow to around 1.8% in the second quarter, but we should see a pick-up in the second half of this year. The slowdown is probably a delayed reaction to the tax hikes at the start of the year and more recently the …
The slight drop in the University of Michigan measure of consumer confidence to 82.7 in June, from 84.5, reversed only part of the sharp gain of May. While the details of the report point to solid annualised consumption growth of over 3% in the second …
14th June 2013
The recent weakness of the global economy explains why both industrial activity and core producer price pressures are still subdued. Producers have had little choice but to reflect the previous sharp falls in raw material costs in their selling prices. … …
May’s retail sales figures revealed some tentative signs that households are getting over January’s tax hikes and may be starting to spend some of the cash freed up by the recent fall in gasoline prices. … Retail Sales (May …
13th June 2013
We don't expect the Fed to begin curbing its asset purchases from the current pace of $85bn per month at the upcoming FOMC meeting, which concludes next Wednesday (19th June). The economic data simply hasn't been strong enough. Moreover, it makes sense to …
12th June 2013
The Fed’s latest US Financial Accounts (formerly known as the Flow of Funds Accounts) highlight that in a few years’ time, US households will be well placed to contribute to a prolonged period of decent economic growth. The same cannot be said in most …
11th June 2013
There does appear to be a localised bubble in farmland values in the corn belt. Near-zero interest rates have undoubtedly played some role in this, but the bigger factor has been the surge in corn and wheat prices over the past decade. We do not believe …
10th June 2013
We do not place much weight on concerns that the recent rise in Treasury yields will snuff out the economic recovery or that it is the start of a sharp and sustained rise in yields similar to that seen in 1994. Even if the Fed does decide to taper the …
By revealing a decent rise in payroll employment but a small rise in the unemployment rate, May’s Employment Report had something for everyone. Our reading is that it leaves the Fed on track to taper the pace of its monthly asset purchases later this …
7th June 2013
Core inflation is unlikely to fall to a level that will spark concerns about deflation and prevent the Fed from slowing the pace of its monthly asset purchases later this year. This is mainly because core inflation is being driven lower by the downward …
5th June 2013
The rebound in the monthly trade deficit to $40.3bn in April, from $37.1bn in March, was largely due to an unwinding of the distortion caused by the Chinese Lunar New Year Holiday. … International Trade …
4th June 2013
The decline in the ISM manufacturing index to a near four-year low of 49.0 in May, from 50.7, suggests that weak global conditions are weighing on US producers. While the manufacturing sector is suffering, however, other sectors of the economy, …
3rd June 2013
The latest data from the New York Fed have reignited concerns about a possible bubble in student loans. But the growth of student loans has always been faster than the growth in other types of household debt, largely because more students are going into …
Our econometric model suggests that non-farm payroll employment increased by a solid 175,000, in May, although we suspect the unemployment rate remained unchanged at 7.5%. … Labour market conditions improving …
30th May 2013
The FDIC’s latest banking figures show that, buoyed by falling loan default rates, the quarterly net income of US banks hit a record high of $40bn in the first quarter. The expiry of the unlimited deposit guarantee at the end of last year has had no …
29th May 2013
The US recovery has, up to now, remained lacklustre, but there are signs that this extended malaise could finally give way to a period of more vigorous growth. We expect GDP growth to accelerate from 2.0% in 2013 to 2.5% in 2014. The two biggest factors …
28th May 2013
Thanks to the continued rally in equity prices, falling gasoline prices and the housing recovery, the Conference Board measure of consumer confidence rose to a five-year high of 76.2 in May, from 69.0. Nonetheless, second-quarter consumption growth is …
For a central bank that supposedly puts so much weight on clear communications, last week’s various attempts by Federal Reserve officials to explain when it might begin curbing its open ended monthly asset purchases only ended up adding to the confusion. …
27th May 2013
The 3.3% m/m rebound in durable goods orders in April is another sign that growth is holding up quite well. We anticipate a 5% annualised gain in business investment in the second quarter, with overall GDP growth of between 2.0% and 2.5%. … Durable Goods …
24th May 2013
The fall in inflation to well below the Fed's 2% target rate is another reason why the central bank will be in no hurry to slow the pace of its monthly asset purchases. Headline CPI inflation fell to only 1.1% in April. Admittedly, the decline was mainly …
21st May 2013
Over the next two years, America is expected to reduce its government budget deficit by more than the largest European economies. This won’t come without a cost. But the big difference is that America’s private sector is healthy enough to generate overall …
20th May 2013
The sharp increase in the University of Michigan measure of consumer confidence to a near-six-year high of 83.7 in May, from 76.4, is due to a fruitful combination of a number of events. It appears that annualised consumption growth in the second quarter …
17th May 2013
Further falls in core inflation may make some Fed officials concerned about the possibility of very low inflation, or even deflation. This could mean we are jumping the gun a bit by expecting the Fed to slow the pace of its monthly asset purchases towards …
16th May 2013
The recent strengthening of the dollar against the Japanese yen is unlikely to put a major dent in US inflation or activity. What’s more, the competitiveness of US manufacturers may not be eroded too much, although automakers are most vulnerable. … Rise …
15th May 2013
The delayed effects of previous falls in commodity prices and signs of a further easing in industrial activity will continue to weigh on pipeline price pressures. Over the next year at least, inflation is more likely to be too low rather than too high. … …
Broad money growth has remained largely unchanged over the past six months, even after the Fed restarted its quantitative easing. The annual growth rate of our M3 measure picked up slightly to 6.4% in April, from 6.0% in March. … Monetary Indicators …
14th May 2013
April’s retail sales data provided the strongest sign yet that households have largely shrugged off January’s tax hikes. This is perhaps partly due to the recent plunge in gasoline prices, which has left them with more cash to spend on other items. … …
13th May 2013
The fall in the stock of credit card debt in March tells us almost nothing about the outlook for consumption. More useful are other signs that credit card lending will rise over the next year. At the same time, mortgage buyers may finally be playing a …
The evidence is far from conclusive, but the recent decline in average weekly hours worked, particularly in the retail sector, may be partly explained by employers cutting hours to avoid paying the penalties due from next year if they don't offer health …
7th May 2013
The Fed's latest Senior Loan Officer Survey indicates that commercial banks have further loosened lending standards, particularly on loans to businesses. The net percentage of banks reporting in the second quarter that they had loosened standards on …
6th May 2013
The Fed won’t follow its recent hint that it could increase as well as reduce the pace of its monthly asset purchases by stating what combination of the unemployment and inflation rates would trigger a shift. Summarising such a complex decision into two …
The better than expected 165,000 increase in non-farm payrolls in April, combined with the 114,000 upward revision to the gains in the preceding two months, will go a long way toward soothing fears of another spring slowdown. With the unemployment rate …
3rd May 2013
The sharp decline in the monthly trade deficit to $38.8bn in March, from $43.6bn the month before, is largely due to a distortion caused by the timing of the Lunar New Year Holiday in China. There is a good chance this will be reversed in April. … …
2nd May 2013
The Fed's assessment of the economic outlook didn't change much in the statement issued today, but the FOMC nevertheless felt it necessary to flag up explicitly that the pace of asset purchases could, in the future, be increased or reduced. We still …
1st May 2013
The slowdown in global economic growth appears to have hit American manufacturers in April. The ISM manufacturing index dropped to 50.7 in April, from 51.3 in March, erasing almost all of the gain seen over the first quarter, leaving the index dangerously …
The sharp rebound in April's Conference Board's measure of consumer confidence to 68.1, from an upwardly revised 61.9 in March, was driven by the decline in gasoline prices and the continued rally in equity prices. Nonetheless, the details of the survey …
30th April 2013
The latest fall in gasoline prices will soon drag headline PCE inflation below 1%. With core PCE inflation set to remain only just above 1.0%, the Fed is likely to become more concerned by the subdued outlook for inflation. … Headline PCE inflation to …
With the full impact of the sequestration spending cuts, equivalent to roughly 0.7% of GDP, still to feed through, over the next 12 months the public sector will remain a significant drag on economic growth. … Fiscal squeeze to …
29th April 2013
The Fed’s preferred PCE measure of core inflation could soon fall to around 1%. Together with the recent weakening in the tone of the incoming activity data, this may mean the Fed is less inclined to trim the size of its monthly asset purchases later this …
The pick-up in first-quarter GDP growth to 2.5% annualised, from 0.4% in the final quarter of last year, was a little below the consensus forecast at 3.0%, but still impressive in a quarter that was marked by an almost unprecedented fiscal squeeze. … GDP …
26th April 2013
Our econometric model suggests that, although the labour market has weakened since earlier in the year, conditions are not quite as bad as March’s Employment Report suggested. We expect a rebound in the monthly increase in payroll employment in April, to …
25th April 2013
The deterioration in the incoming economic data for March will, at least temporarily, prevent the Fed from slowing the pace of its monthly asset purchases. We anticipate that the Fed will stand pat at the upcoming two-day FOMC meeting that concludes on …
24th April 2013
The sharp decline in durable goods orders in March is another indication that, after a pretty strong first quarter, the recovery is losing momentum again. … Durable Goods …
