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We now expect the US economy to grow by just 2% this year, down from our previous forecast of 2.5%. Growth in 2012 is unlikely to be any better. This downward revision has nothing to do with the deficit reduction package, as this is not large enough to …
3rd August 2011
July's ISM report was a shocker. The index is not flagging up another recession (at least not yet), but it suggests that the easing in GDP growth in the first half of the year is looking more and more like a sustained slowdown than a short-lived soft …
2nd August 2011
Even if the politicians finally get their act together and agree a deficit reduction package, the resulting spending cuts may not be large enough to appease the credit rating agencies. As such, we wouldn't be surprised to see America lose its AAA credit …
The latest noises from Washington suggest that politicians are close to reaching a compromise on a deal that will raise the debt ceiling ahead of Tuesday night, thereby preventing a debt default and a government shutdown. This might prompt a short-lived …
1st August 2011
The disappointing 1.3% annualised rise in GDP in the second quarter and the downward revision in the first quarter suggests that economic growth for 2011 as a whole may fall short of our 2.5% forecast. 2% is looking more plausible. What's more, with a …
30th July 2011
The fact that the recent slowdown in jobs growth is mostly due to a rise in firings, rather than a fall in hiring, suggests that a rapid rebound in non-farm payroll employment is not imminent. Our econometric model, which incorporates a range of labour …
29th July 2011
The fall in durable goods orders in June confirms that the US economy is still struggling. But the numbers do not alter our estimate that annualised GDP growth in the second quarter was 2.3%, slightly better than the consensus forecast of 1.7%. … Durable …
28th July 2011
The slight rebound in the Conference Board measure of consumer confidence, to 59.5 in July from 57.6 in June, is a bit bizarre given that all the other measures of confidence have recently fallen. Nonetheless, confidence remains at a level consistent with …
27th July 2011
We still think that the US government is unlikely to default on its debt. But if it did, the implications would potentially be far more serious than those that would follow a one or two notch downgrade of its credit rating from the current AAA. … What if …
26th July 2011
Our calculations suggest that GDP growth accelerated a little to 2.3% annualised in the second quarter, from 1.9% in the first, despite the fact that consumption growth apparently slowed to less than 1%. The near-stagnation in real consumption is mostly …
A downgrade of US government debt would not necessarily be disastrous for Treasuries or the dollar, at least once the dust settled. However, it would be the starkest warning yet that the fall-out from the global financial crisis will still be felt for …
23rd July 2011
An agreement to raise the debt ceiling still appears to be some way off, but not for lack of trying. Every day seems to bring a new deficit reduction plan. With the clock ticking, we doubt there is time to reach agreement on a comprehensive plan. Instead, …
21st July 2011
Despite a marked slowdown in consumption growth to less than 1% annualised, it appears that overall GDP growth may actually have picked up a little to 2.3% in the second quarter, from 1.9% in the first. Previously we thought that growth would be about …
20th July 2011
The annual growth rate of our own Capital Economics measure of the M3 aggregate hit a two-year high of 4.9% in June, while the growth rates of both M1 and M2 continued to rise as well. … Monetary Indicators Monitor …
19th July 2011
The risk that the US government will default on some of its debt obligations lingered last week as the stand-off over the raising of the debt ceiling appeared to intensify. At the same time, it has become more likely that at some point the US might have …
It looks like the annual rate of headline CPI inflation peaked at 3.6% in June, but core inflation edged up to 1.6% last month, from 1.5%, and will continue to climb over the next few months. By the end of this year both headline and core inflation will …
16th July 2011
The level of retail sales has been pretty much unchanged in the three months to June, suggesting that annualised real consumption growth in the second quarter was just 0.6% and overall GDP growth was around 2%. This will do little to dispel fears over the …
15th July 2011
Even though the trade deficit widened in May, to a level last seen just after the fall of Lehman Brothers in September 2008, it still looks as though net trade made a decent positive contribution to real GDP growth in the second quarter. Without that, the …
13th July 2011
The impasse over raising the debt limit continued last week, although it looks like the two sides are edging closer to a deal ahead of the 2nd August deadline set by the Treasury. If there's no deal by early August we suspect the Treasury would still be …
12th July 2011
June's employment report doesn't have a single redeeming feature. It's awful from start to finish. Non-farm payrolls increased by only 18,000 last month, down from a similarly muted 25,000 gain the month before. … Employment Report …
9th July 2011
Although the US is running a budget deficit equal to 9% of GDP and a current account deficit of 3% of GDP, its net external liabilities at 17% of GDP are not actually that large. Last year, they even shrank. What's more, the US is one of only a handful of …
5th July 2011
The modest rebound in the ISM manufacturing index in June, to 55.3 from 53.5 in May, will ease fears that the economy is heading towards a double dip recession. But more generally, the clear slowdown in activity in recent months highlights that, even …
2nd July 2011
Our econometric model suggests that the discouraging 54,000 increase in non-farm payroll employment in May was followed by a slightly less disappointing 80,000 gain in June. That may go someway to easing fears that a double-dip recession is just around …
1st July 2011
The further fall in the Conference Board's measure of consumer confidence in June shows that the drop back in equity prices, the rebound in the unemployment rate and the further fall in house prices have more than offset any boost from the decline in …
29th June 2011
The sharp drop back in energy prices last week should provide a much needed boost to real consumption in the third quarter. Unfortunately, that boost from falling prices will only be temporary. Looking beyond the third quarter, households still face an …
28th June 2011
The rebound in orders for new durable goods in May will help ease any fears that the economy is headed for a double-dip recession. Nevertheless, it doesn't change the broader picture that economic growth has slowed sharply over the past few months. … …
25th June 2011
The conventional wisdom is that the rebound in core inflation mainly reflects a permanent rebound in the growth rate of housing costs. However, the pick up over the past few months is more to do with the temporary effects of the recent spike in commodity …
24th June 2011
The statement issued today after the end of the two-day FOMC meeting offered no hint that the recent signs of a renewed economic slowdown might tempt the Fed to launch another round of large-scale asset purchases. As Chairman Ben Bernanke explained in his …
23rd June 2011
The acceleration in core inflation suggests that the threat of deflation has eased significantly, at least for a while, which is one of the key reasons why we don't expect the Fed to respond to the recent signs of weaker economic growth with QE3. To some …
21st June 2011
Even though the number of Google searches for "double dip recession" has surged and the old fashioned misery index has increased to a 28-year high, Americans are probably not quite as gloomy as those indicators appear to suggest. Nonetheless, the …
We doubt that the signs of a renewed economic slowdown will prompt any knee-jerk reaction from the FOMC at its two-day policy meeting, which concludes next Wednesday (22 nd June). The accompanying statement is bound to acknowledge the evident loss of …
16th June 2011
… Consumer Prices & Industrial Production (May) …
The annual growth rate of money, including our own Capital Economics' measure of the M3 aggregate, continued to accelerate in April, mainly in response to the Fed's quantitative easing. But with QE2 due to finish in two week's time, we wouldn't be …
15th June 2011
Today's data releases brought more signs of mounting economic weakness and evidence that the upward pressure on inflation is beginning to fade. … Retail Sales & Producer Prices …
Deliberately embracing higher inflation as a way out of the sovereign debt crisis could have disastrous consequences. Instead, for most advanced countries, wherever it is feasible, a combination of fiscal austerity and sustained economic growth offers the …
14th June 2011
With the end of QE2 approaching, it is notable that in the first quarter the Fed absorbed all of the net issuance of Treasury debt and then some. Nevertheless, we still believe it is the stock of outstanding debt that matters more rather than the flow of …
Pretty much all of the sharp fall in the trade deficit in April will eventually be reversed as the temporary effects caused by disruptions from Japan's earthquake fade. Nonetheless, a modest positive contribution to second-quarter GDP growth may at least …
10th June 2011
The run of unexpectedly poor economic data has inevitably led to speculation that the Fed could be forced to adopt QE3. However, there are three reasons why we doubt that the Fed would be willing to countenance a new programme of large-scale asset …
7th June 2011
The data released last week strongly suggested that the recovery has hit its second "soft patch" which, for an expansion that is less than two years old, is troubling to say the least. Admittedly, some of the weakness can be blamed on temporary factors, …
6th June 2011
The very disappointing 54,000 increase in May's non-farm payrolls, down sharply from a 232,000 gain in April, will undoubtedly lead to calls for the Fed to continue with its large-scale asset purchases beyond the scheduled conclusion of QE2 at the end of …
3rd June 2011
The sharp decline in the ISM manufacturing index to a 19-month low of 53.5 in May, from 60.4, will only add to fears that the economy has hit another "soft patch". That decline comes on the heels of the much weaker than expected ADP survey, released …
1st June 2011
The fall back in consumer confidence in May was most likely due to the combination of the sharp decline in house prices in the first quarter, the more recent flat lining of equity prices, the uptick in initial jobless claims and general signs that the …
31st May 2011
It's ironic that in the same week that the movie of the book "Too Big To Fail" was first premiered on American television, it was revealed that the net income of US banks was higher in the first quarter than at any time since the financial crisis. The …
30th May 2011
The shift towards fiscal consolidation is another reason to suspect that the US economic recovery will remain muted. We expect GDP growth to slow from 2.5% this year to 2.0% in 2012. In an environment where fiscal policy is being tightened, perhaps quite …
26th May 2011
Our econometric model, which is based on a wide range of indicators, suggests that payroll employment increased by around 150,000 in May. That would be the smallest increase since January and would be especially disappointing after April's healthy 244,000 …
The lagged effect of the rapid run-up in commodity prices over the past year will push CPI inflation up from 3.1% in April to close to 4% by the summer. But now that the upward trend in commodity prices appears to have run out of steam, and in some cases …
25th May 2011
The 3.6% m/m drop back in durable goods orders in April isn't quite as bad as it looks, at least not when we take into account that decline only partially reversed the 4.4% m/m increase in March. Nevertheless, it is another sign that the manufacturing …
There is little prospect of getting the Federal deficit under control in the long-term unless spending on health care is reined in or, at the very least, not allowed to continue growing at a faster pace than nominal GDP. More generally, this is a problem …
23rd May 2011
Industrial production was unchanged in April and manufacturing output fell by 0.4% m/m, largely because of the disruption to motor vehicle production, which is being hampered by parts shortages in the aftermath of the Japanese disaster. … Industrial …
17th May 2011
The annual growth rate of money, including our measure of the M3 aggregate, continued to accelerate in April. Nevertheless, at a time when T-bill rates have fallen even closer to zero, we suspect this pick up largely reflects a rise in the investment …
16th May 2011
