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The US economy appears to be developing a split personality. Households, seemingly oblivious to the scheduled jump in marginal tax rates that will reduce their after-tax income next year, are apparently growing in confidence and boosting expenditure. At …
17th October 2012
At the start of next year, the MPC will have to decide what to do with those gilts purchased in its quantitative easing (QE) programme that are about to mature. We expect the Committee to maintain its current loose stance of policy by re-investing the …
16th October 2012
While the annual growth rates of the slightly narrower M1 and M2 monetary aggregates have slowed in recent months, the growth rate of our broader M3 measure has accelerated. Moreover, there is a good chance that all the growth rates will begin to pick up …
The strong rise in retail sales in September was probably flattered by a gain in food prices (triggered by the recent drought) and the release of Apple’s iPhone 5. Nonetheless, it now seems likely that third-quarter annualised GDP growth was closer to …
15th October 2012
The initial reaction to the Fed's QE3 announcement in mid-September was fairly encouraging. Unfortunately, only a few weeks later, things don't look quite as promising. Agency MBS yields have rebounded, reversing much of the original decline. Mortgage …
The University of Michigan's measure of consumer confidence shot up to a five-year high of 83.1 in October, from 78.3, but we're not convinced this upturn will lead to faster consumption growth. For a start, the surge in confidence is hard to square with …
12th October 2012
In a new academic paper, Robert Gordon speculates that per capita economic growth in the US could permanently stagnate, as fading innovation is compounded by headwinds from demography, education, inequality, environmental concerns, globalisation and the …
11th October 2012
The rebound in the monthly trade deficit to $44.2bn in August, from $42.5bn, was due to the combination of a drop in exports and an increase in the value of petroleum-related imports. … International Trade (Aug. …
Jack Welch's tweet wasn't the only piece of nonsense written last week about the reported decline in the unemployment rate to 7.8% in September. The decline in the standard measure was questioned by others because the wider U6 measure of unemployment …
10th October 2012
While the net external financial surplus, which offsets the current account deficit, has remained broadly unchanged at around 3% of GDP over the past few years, the separate financial inflows and outflows have recently slumped. For the first time since …
9th October 2012
The latest monthly data suggest that business investment contracted slightly in the third quarter, probably because of a growing caution with the fiscal cliff looming closer and the euro-zone crisis rumbling on. We don't anticipate that this is the start …
8th October 2012
While the modest 114,000 increase in September's non-farm payrolls was no better than the consensus forecast, the 86,000 upward revision to job gains in the two months before that and the decline in the unemployment rate to a three-and-a-half-year low of …
5th October 2012
The sharp rise in the share of employees working part-time may not be as big a concern as it seems at first sight. After all, most of these extra part-timers are still working between 30 and 35 hours a week. What’s more, the share of part-time workers in …
4th October 2012
The indicators that provide some steer of where the unemployment rate is heading over the next few months supply little evidence that it will dip below 8%. What’s more, we doubt that GDP growth will be strong enough next year to drive the unemployment …
3rd October 2012
The rebound in the ISM manufacturing index in September will boost hopes that some of the recent slowdown in economic growth was just a summer phenomenon. But while GDP growth may accelerate a bit, a major improvement is not on the cards. … ISM …
1st October 2012
The promising recovery in the housing market will continue during the fourth quarter and next year. But because housing accounts for only a tiny share of GDP, the recovery won’t transform the US from an economy growing at a fairly subdued rate to one …
28th September 2012
Our econometric model suggests that non-farm payroll employment rose by around 100,000 in September, which would suggest that labour market conditions remain lacklustre. … No signs of faster jobs …
27th September 2012
Don't panic. The massive 13.2% m/m slump in durable goods orders in August was largely due to a drop back in the notoriously volatile commercial aircraft component. In addition, the downward revision to second-quarter GDP growth was mainly due to a bigger …
The Fed's decision to restart its large-scale asset purchases, this time with an open-ended agency MBS programme, is part of what could potentially be a much wider shift in the monetary policy framework. Along with the launch of QE3, changes in the …
26th September 2012
Thanks to the continued rally in equity prices, the Conference Board's measure of consumer confidence shot up to a seven-month high of 70.3 in September, from 61.3 in August. It appears that households are less concerned about either the rise in gasoline …
25th September 2012
QE3 could eventually leave the Fed holding nearly 30% of all mortgage-backed securities, making it a bigger player in the market than either banks or mutual funds. This suggests that, unless economic conditions improve more quickly than either our …
It is encouraging that, faced with the prospect of the US economy hitting the fiscal cliff at the end of the year, businesses have not started to hoard more cash. At the same time, though, there is little evidence that they have started to use their spare …
24th September 2012
Despite the ongoing euro-zone crisis, the looming fiscal cliff and a drop back in the value of their financial assets, US households actually increased their debts in the second quarter by $74bn at an annualised pace. That was only the second quarterly …
The sheer size of the Fed’s QE3 policy becomes even more apparent when it is compared to the policies of other central banks. Although we doubt that QE3 will set the US economy alight, the greater policy stimulus may be one more reason to expect the US to …
20th September 2012
The key message from the host of September manufacturing surveys recently released is that conditions haven’t really deteriorated since last month, but industry is still the weakest part of the economy and the most vulnerable to the global slowdown. … …
The global economic slowdown appears to be having a more marked impact on the US economy, with exports falling sharply in July and manufacturing output dropping in August. The survey evidence now points to a continued decline in real exports. The end-year …
The early evidence suggests that the Fed’s latest policy actions have already started to have their desired effect on financial markets. But there are large question marks over whether these moves will be sustained and whether they will translate into …
18th September 2012
The annual growth rates of the various broad money aggregates have slowed recently, but they will accelerate again as the Fed restarts its quantitative easing, this time purchasing $40bn of mortgage-backed securities per month. … Monetary Indicators …
17th September 2012
The fall in the real median household income to a 16-year low in 2011 means that many Americans are worse off now than they were when President Obama first took office. But the whole economy is undoubtedly in better shape. At the end of 2008, GDP was …
Despite the sharp increase in gasoline prices and the looming fiscal cliff, the University of Michigan measure of consumer confidence rose to a four-month high of 79.2 in September, from 74.3 in August. This news comes in stark contrast to the run of …
14th September 2012
The main message from August’s retail sales and industrial production data is that economic growth remains subdued, and it could yet get weaker. … Retail Sales & Industrial Production …
Consumer prices increased by a sizeable 0.6% m/m in August, largely thanks to a 9.0% m/m rebound in gasoline prices. Nevertheless, even after that big monthly gain, the annual rate of inflation only ticked up to 1.7%, from 1.4%, leaving it still …
The Fed today announced an open-ended QE3 focused on MBS purchases and extended its conditional commitment to leave its policy rate at near-zero through mid-2015. There were numerous other tweaks to its communications strategy, most of which involved …
We think there is a 70% chance that Congress will reach a last minute deal to prevent the $600bn of tax hikes and spending cuts that form the fiscal cliff from kicking in at the start of 2013. But there is a small risk that political brinkmanship could …
12th September 2012
Professor Michael Woodford's recent academic paper presented at the Fed's Jackson Hole conference is still making waves, not surprisingly given his conclusions that quantitative easing doesn't work, that the Fed could do a lot more to improve its …
Today’s announcement by Moody’s that it will probably strip America of its AAA credit rating is not “new news” and shouldn’t cause any major waves in the bond market. The US fiscal position has been on a perilous trajectory for some years and S&P …
11th September 2012
July’s trade figures are nowhere near as good as they look at first sight, as they mask a significant deterioration in export growth to the euro-zone. What’s more, the full impact on the US economy from the overseas slowdown has yet to be felt. … …
The modest rebound in the NFIB small business optimism index to a three-month high of 92.9 in August, from 91.2, is encouraging, but the index is still well below its pre-recession level, suggesting that small businesses remain unusually reticent. … …
The historical experience of the gold standard is that countries often saw periodic declines in their gold stocks, which triggered either a corresponding contraction in money or a hike in interest rates to encourage capital to flow back. Either would then …
10th September 2012
The ISM non-manufacturing survey gets much less attention than its older manufacturing brother even though the non-manufacturing sectors account for a much larger share of GDP. And if these sectors weren’t currently outperforming industry, the economy …
7th September 2012
The modest 96,000 increase in non-farm payrolls in August only increases the probability that the Fed will launch QE3 next week and it won't help President Obama's re-election chances either. … Employment Report (Aug. …
The close relationship between President Obama’s chances of re-election and the level of the S&P 500 appears to suggest that the stock markets favour a Democrat as President. But it is important not to confuse correlation with causation. Obama’s election …
6th September 2012
It now seems highly likely that the Fed will launch a third round of large-scale asset purchases (QE3) at next week's two-day FOMC meeting, which concludes on Thursday 13th September. We expect QE3 to be primarily focused on buying mortgage-backed …
5th September 2012
August’s ISM manufacturing index gives the Fed another green light to launch QE3 next week. Such action is warranted, but it won’t dramatically alter the economic landscape. … ISM Manufacturing Index …
4th September 2012
Fed Chairman Ben Bernanke used his speech at Jackson Hole today to state that unconventional monetary policy does work and that the US needs more of it. It now appears even more likely that at the next FOMC meeting in mid-September the Fed will launch a …
31st August 2012
Although the tax hikes and spending cuts that constitute the fiscal cliff aren’t due to take place until the start of next year, businesses are increasingly stating that the resulting fiscal uncertainty is already hitting sentiment and activity. This is …
Our econometric model suggests that non-farm payroll employment increased by around 100,000 in August, which would be disappointing after July’s 163,000 gain. What’s more, it is possible that in the coming months the uncertainty generated by the fiscal …
30th August 2012
The alternative gross domestic income (GDI) measure of output suggests that the US economy is hardly growing at all. What’s more, there are a couple of reasons why GDI may be a more robust and more reliable measure of output than the more widely used …
29th August 2012
According to the latest data from the FDIC, US banks continued to benefit from shrinking loan losses in the second quarter, which allowed them to maintain a high capital ratio even as they expanded the size of their loan portfolios. … US Banks continue to …
The fall in the Conference Board measure of consumer confidence in August suggests that households are becoming more nervous. Coming after last week’s soft durable goods orders data, this is another sign that the uncertainty generated by the euro-zone …
28th August 2012
