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The Fed’s QE3 policy has contributed to the acceleration in the growth rate of our M3* measure of broad money to a four-year high of 6.5% in January. But the continued expansion in the Fed’s balance sheet does not appear to be boosting inflation or …
19th February 2013
All the recent talk of currency wars is overdone and holds few implications for the US economy. The rise in the dollar against the yen has just been offset by a fall against the euro. The dollar trade-weighted index is broadly at the same level as when …
18th February 2013
The rise in the University of Michigan measure of consumer confidence to 76.3 in February, from 73.8, probably reflects a mixture of better news on the labour market and the continued rally in stock markets. Clearly, households have made peace with lower …
15th February 2013
There’s no need to be concerned by the fall in manufacturing output in January. The improvement in the survey evidence and the slightly better global backdrop actually mean that industrial conditions are strengthening. … Industrial Prod. (Jan.) & Empire …
The probability is rising that Congress won't act to prevent the sequestration spending cuts taking effect at the start of next month. On paper, that would reduce spending by $110bn per year, equivalent to 0.7% of GDP, for nearly a decade. Even if …
14th February 2013
The outlook for the US economy is improving and, although first-quarter GDP growth will be hit by the expiry of the payroll tax cut, growth should climb back to around 2.5% annualised in the second half of this year and continue at roughly the same pace …
13th February 2013
It is mildly encouraging that consumption in January did not capitulate completely after the recent tax hikes. And while higher taxes and the latest leap in gasoline prices could yet hit sales harder in the next few months, the outlook for consumption in …
State and local governments have sorted out their finances to such an extent that they will soon be in a position to raise spending and, consequently, boost both GDP and job growth. This will offset at least part of the drag on growth from the expected …
12th February 2013
As if households didn't already have enough to worry about with the expiry of the payroll tax cut at the start of this year, they suddenly find themselves having to cope with a sudden spike in gasoline prices and delays in receiving their tax rebates. …
11th February 2013
The unexpected narrowing of the trade deficit to $38.5bn in December, from $48.6bn the month before, pretty much guarantees that the dip in fourth-quarter GDP will be revised to a small gain in the second estimate. … International Trade …
8th February 2013
Further increases in both house and equity prices would take net household wealth back above prerecession levels later this year, perhaps helping to boost GDP by around 0.7%. This wealth effect should continue to boost the economy in future years too, …
7th February 2013
The latest projections from the non-partisan Congressional Budget Office show that, despite recent efforts to control spending and boost revenues, the Federal budget deficit will remain close to 4% of GDP through this decade, before starting to widen …
5th February 2013
The expiry of the payroll tax cut will contribute to what could be a 3.5% m/m slump in personal disposable income in January. We expect any decline in real consumption to be pretty modest, however, with households absorbing the loss of income by lowering …
The Fed's latest Senior Loan Officer Survey (SLOS) reveals an encouraging bounce back in demand for business loans, which suggests that investment growth could accelerate over the first half of this year. … Banks see rebound in demand for business …
4th February 2013
Consumer confidence may be as much as 20 points lower than otherwise due to the effects of the payroll tax hike. But as long as employment continues to rise, gasoline prices don’t increase too much and equity prices hold on to their recent gains, …
Even after taking a step back and looking at the bigger picture, we still don’t believe that the fall in GDP in the fourth quarter is much of a concern. Contractions in government spending and negative contributions to growth from inventories and net …
The mixed messages in January's labour market report underline how hard it is for the financial markets to gauge exactly what the Fed means by its loosely defined pledge, to continue with its quantitative easing until the labour market outlook improves …
1st February 2013
The increase in the ISM manufacturing index to a one-year high of 53.1 in January, from 50.2 in December, indicates that the improvement in global factory conditions, evident in the rebound in various global PMIs, has spread to the US too. … ISM …
Coming on the heels of the unexpected dip in fourth-quarter GDP, January's Employment Report should help to soothe any lingering concerns that the economy is headed for a recession. … Employment Report …
The latest Fed statement offers little new, apart from a change in the resident hawk on the FOMC. We still expect QE to be maintained at $85bn per month until early 2014. … Fed swaps one hawk for …
31st January 2013
The 0.1% q/q decline in fourth-quarter GDP growth is going to get everybody very excited today, but this isn't the start of a new recession. First-quarter GDP growth is going to be pretty weak because of the expiry of the payroll tax cut, but there is …
30th January 2013
The drop in the Conference Board measure of consumer confidence to a 14-month low of 58.6 in January, from 66.7, appears to have been driven by the recent payroll tax increase. Even if confidence does rebound in the near-term, the hit to household income …
29th January 2013
Business investment apparently enjoyed an unexpected renaissance over the final few months of last year, only getting stronger as the fiscal cliff deadline got closer. Durable goods orders increased by a much bigger than expected 4.6% m/m in December. …
28th January 2013
The Republicans opted to raise the debt ceiling temporarily because they believed it was politically expedient to link their demands for spending cuts to one of the many other potential budget flashpoints coming up. They are just picking their battles. …
By pointing to an acceleration in manufacturing output growth to around 8% per year, the Markit manufacturing PMI is probably a bit too upbeat. After all, it stands out as being much more optimistic than the other surveys. Nonetheless, the recent …
24th January 2013
Our econometric model suggests that payroll employment rose by a respectable, but hardly spectacular, 150,000 in January. Meanwhile, the annual benchmark revision may show that payrolls rose by more than currently believed last year. … Steady, but not …
The first FOMC meeting of the New Year, which concludes next Wednesday (30th January), is unlikely to bring any major changes coming, as it does, only six weeks after the Fed expanded its large-scale asset purchases and linked its pledge to leave rates at …
23rd January 2013
Thanks to the recent pick up in overseas activity and the fall in the dollar, the outlook for US exporters has brightened. But without a major turnaround in economic activity in the euro-zone, export growth in the US will remain subdued. … A brighter …
22nd January 2013
In the end the looming fiscal cliff didn't appear to have any severe impact on the wider economy, with the growth rates of employment, retail sales and even durable goods orders all accelerating over the final few months of last year. The ISM …
21st January 2013
The expiry of the payroll tax cut could easily bring the acceleration in consumption growth over the second half of last year to a juddering halt this January. Some of the blow to real incomes will be offset by lower gasoline prices and the annual …
The slight drop in the University of Michigan's measure of consumer confidence to a one-year low of 71.3 in January, from 72.9, suggests that the actual onset of lower after-tax incomes in the New Year further dampened sentiment. As it stands now, …
18th January 2013
Regardless of how the current debt ceiling negotiations pan out, the bigger problem is that there has been an almost complete breakdown in the working relationship between both sides in Congress. As a result, even if the debt ceiling ends up being raised …
17th January 2013
The annual growth rate of our measure of the broadest M3 monetary aggregate hit a three-and-a-half-year high of 6.4% in December, with the growth rates of the narrower M1 and M2 aggregates also accelerating. (See Chart below.) With the Fed doubling the …
16th January 2013
Inflation dipped further below the Fed's 2% target in December, leaving it free to focus its policy efforts on reducing the still elevated unemployment rate. … Consumer Prices & Industrial Production (Dec. …
The apparent strength of retail sales growth over the final few months of last year suggests that the looming fiscal cliff, including the risk of higher taxes, did little to deter consumers over the holiday shopping season. Retail sales values increased …
15th January 2013
The fanciful idea that the US Treasury could circumvent the debt ceiling by minting a $1trn platinum coin suddenly exploded in popularity last week. This is never going to happen. One question that hasn't been answered is, in the very unlikely event it …
14th January 2013
The unexpected widening in the trade deficit to a seven-month high of $48.7bn in November, from $42.1bn, is not good news for fourth-quarter GDP growth. It looks like GDP growth was between 1.0% and 1.5% annualised. … International Trade (Nov. …
11th January 2013
The inclusion later this year of capitalised research and development (R&D) expenditure in the national accounts will boost the level of GDP by up to 3%, with most of that additional spending being added to business investment. The inclusion of a …
10th January 2013
Even if US oil and gas production does continue to expand at the breakneck pace seen over the past few years, the overall impact on GDP growth will be muted. The mining sector as a whole accounted for a modest 1.9% of value-added GDP in 2011 and 0.5% of …
9th January 2013
The 11th hour fiscal cliff deal to avert most of the scheduled tax increases was better than nothing, but it didn’t include a provision to raise the debt ceiling and the scheduled spending cuts have only been delayed for two months. As a result, we are …
7th January 2013
The 155,000 increase in non-farm payrolls in December is yet another month of job growth that is just about enough to keep pace with the underlying growth in the labour force, but not enough to drive the unemployment rate markedly lower. This has been the …
4th January 2013
Jobs growth probably accelerated in December, as a few more employees finally returned to work after the disruptions caused by superstorm Sandy. Our econometric model suggests that non-farm payroll employment increased by around 175,000. … Ending the year …
2nd January 2013
The fiscal cliff deal approved by both Houses of Congress to avert most of the scheduled tax increases is better than nothing, but it didn’t include a provision to raise the debt ceiling, and the scheduled spending cuts have only been delayed for two …
The very modest rebound in the ISM manufacturing index to 50.7 in December, from 49.5, illustrates that the factory sector ended last year still caught between the cross-fire of a global economic slowdown and the looming fiscal cliff. … ISM Manufacturing …
The negotiations to avert the fiscal cliff are, as we always expected, going down to the wire. This is supposed to be political theatre. The failure of Boehner's "Plan B" illustrates that any deal has to be a bipartisan one that the moderates on both …
24th December 2012
November's personal income/spending and durable goods reports suggest that fourth-quarter GDP growth will be a little stronger than we previously thought. We are revising our forecast up from 1.5% to 2.0%. … Personal Income/Spend. & Durable Goods …
21st December 2012
There are some signs that the recent stagnation in manufacturing output won’t last long. The Markit manufacturing PMI rose to a seven-month high in December and, although the headline index of the ISM survey fell in November, the rise in the production …
18th December 2012
The recent falls in sentiment of small businesses and high-earning consumers highlight that the fiscal cliff stand-off is weighing on activity. But the resulting hit to the economy may not be too large. Moreover, assuming that Congress reaches a deal to …
We anticipate that US GDP growth will be a modest 2.0% in 2013, before picking up to 2.5% in 2014. There are still downside risks, particularly the possibility of a renewed crisis in the euro-zone or that the fiscal cliff negotiations fail. Nevertheless, …
17th December 2012
The Fed's latest announcement that it will be doubling its open-ended QE3 purchases to $85bn per month means that we can expect a large increase in the monetary base in 2013. As with previous rounds of quantitative easing, however, the impact on the …
