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Post-SVB bank lending holding up well Credit where credit is due The SVB crisis back in mid-March sparked fears of a credit crunch, particularly among regional banks who are the principal source of funding for commercial real estate. Post-SVB, while the …
22nd November 2023
Equipment investment continues to struggle Aside from the plunge in the volatile transport component, the October durable goods orders data suggest that business equipment investment continues to struggle in the fourth quarter. The 5.4% m/m plunge in …
Fed offers something for everyone There is something for everyone in the minutes of the Fed’s early November policy meeting. The FOMC still just about maintained a tightening bias, but the overwhelming impression is that officials thought rates had …
21st November 2023
The economy’s third-quarter strength was not the start of a renewed acceleration and we continue to expect GDP growth to weaken. Regardless, resilient economic growth has not prevented a continued easing in wage and price inflation, and we still think the …
We are doubtful that the recent strength of consumption is because real incomes are being understated, as some have suggested. It is more likely that so-called “excess savings” were previously underestimated, but even the latest estimates imply those …
20th November 2023
Falling inflation prompts rate cut speculation Better inflation news prompts big market moves The release of the slightly-better-than-expected October CPI data earlier this week triggered a massive reaction in markets, with the two-year Treasury yield …
17th November 2023
Output temporarily depressed by UAW strike The 0.7% m/m decline in manufacturing output in October was entirely due to the now-resolved UAW strike, which translated into a temporary 10.0% m/m fall in motor vehicle output. With the UAW securing lucrative …
16th November 2023
During the past decade, the global economy has transitioned out of an era in which globalisation was the key driver of economic and financial relationships into one shaped by geopolitics. Previously, most governments had believed that closer economic …
Despite the indefatigable consumer, price pressures fading fast Retail sales values fell by 0.1% m/m in October, but the decline was principally due to a price-related drop back in gasoline station sales and a modest 1.0% m/m decline in motor vehicle …
15th November 2023
This page has been updated with additional analysis since first publication. Downward pressure on core inflation resumes The softer 0.2% m/m rise in core consumer prices in October makes it even less likely that the Fed will raise rates any further, and …
14th November 2023
Energy disinflation; credit conditions still tight Crude oil price slump to bolster disinflation Despite the ongoing war in the Middle East, crude oil prices have slumped – with the WTI benchmark down from a peak of more than $90 per barrel in late …
10th November 2023
Renewed inflation concerns The continued rise in consumers’ inflation expectations in November showed that October’s jump was not a one-off and will be of some concern to the Fed. However, the headwind from persistently weak confidence is likely to weigh …
Business investment had so far been resilient to higher interest rates, but growth stalled in the third quarter and there are three reasons why we think that’s a sign of things to come. First, the boost from surging manufacturing structures investment has …
8th November 2023
The recent stickiness of the Fed’s preferred measure of ‘supercore’ inflation mainly reflects temporary factors rather than ongoing tightness in the labour market. The upshot is that we still expect a decline in inflation for PCE core services ex-housing …
7th November 2023
Support from rebounding exports unlikely to last The modest increase in the trade deficit to $61.5bn in September, from $58.7bn, reflected strong gains in imports and exports, capping off solid quarterly rebounds in both. But with the global economy …
The Fed’s latest Senior Loan Officer Opinion Survey suggests that, while they remain tight, credit conditions have eased a little since the run of regional bank failures earlier this year prompted the Fed to boost its liquidity provisions to the sector. …
6th November 2023
With the unemployment rate rising, the Sahm rule will probably be triggered soon. That will prompt claims a recession has started but, since that rise is due to increased labour supply as much as it is weaker demand, we would caution against relying on …
There is now mounting evidence that the economy is set for a renewed slowdown in the fourth quarter and that inflationary pressures from the labour market continue to ease. Although markets have already moved to price out any real chance of further rate …
3rd November 2023
Slowdown spreads to services sector The ISM services index fell to a five-month low of 51.8 in October, from 53.6, adding to the evidence that economic growth is slowing after a blockbuster third quarter. Unlike the renewed slump in the manufacturing …
This page has been updated with additional analysis since first publication. Third-quarter strength fading rapidly The muted 150,000 gain in non-farm payrolls in October is another sign that the economy’s strength in the third quarter is likely to unwind …
Productivity acceleration bearing down on unit labour costs Data today confirmed that the surge in GDP in the third quarter was driven by a 4.7% annualised jump in productivity, the biggest gain since 2020. While it remains to be seen whether this is the …
2nd November 2023
By leaving rates unchanged while continuing to flag the possibility of further tightening to come, the Fed indicated today that it remains in ‘wait and see’ mode. But Chair Jerome Powell appeared to strike a more dovish tone in his press conference and we …
1st November 2023
Fed’s tightening bias likely to be dropped soon By leaving rates unchanged while continuing to flag the possibility of further tightening to come, the Fed indicated today that it remains in ‘wait and see’ mode. But we suspect the data over the coming …
The September JOLTS data suggest that the labour market is loosening at a slightly slower pace, but still point to a sharper fall in wage growth ahead. There is little support for the idea that resilient activity growth in the third quarter will lead to a …
This page has been updated with additional analysis since first publication. Manufacturing recovery fizzling out The surprise slump in the ISM manufacturing index to 46.7 in October, from 49.0, suggests the recent recovery in factory-sector activity is …
Sharper slowdown in wage growth still lies ahead The slightly stronger 1.1% increase in the employment cost index in the third quarter is another sign that the earlier rapid easing in labour market conditions may be fading, but the forward-looking …
31st October 2023
Has the AI productivity boom already begun? New Speaker, old problems The House Republicans finally managed to elect a new Speaker this week, with the caucus eventually rallying around Mike Johnson, who up until this week could hardly have been described …
27th October 2023
Stronger rise in core prices likely to be a blip The stronger gains in real consumption and the core PCE price index in September are a potential concern for Fed officials, but won’t be enough to convince them to resume raising interest rates next week, …
After the 336,000 jump in non-farm payrolls in September, we expect a more modest 200,000 increase in October. Moreover, despite some strength in labour demand, wage growth continues to ease. September’s unexpectedly-strong 336,000 rise in non-farm …
26th October 2023
US households still the world’s spenders of last resort On its own, the stunningly-strong 4.9% annualised gain in third-quarter GDP suggests that the Fed needs to do even more to slow demand, but just as notable was the slowdown in core PCE inflation to …
Fed to hold rates at 5.25%-5.50%, and keep further tightening on the table… …but surging long-term Treasury yields reducing appetite for final hike Sharp decline in core inflation to see rates cut to 3.25%-3.50% by end-2024 We don’t expect a significant …
25th October 2023
The apparent strength of third-quarter GDP growth won’t convince the Fed to resume hiking its policy rate, particularly with the ongoing surge in long-term bond yields presenting a growing threat to the economy. Q3 GDP growth strong Despite the recent hit …
20th October 2023
The renewed surge in long-term Treasury yields illustrates that the full impact of Fed tightening is still feeding through, and we continue to expect economic growth to slow sharply over the coming quarters. With core inflation still looking on course to …
The ongoing outflow of funds from the Fed’s reverse repo facility has completely offset the downward pressure on bank reserves from quantitative tightening (QT), suggesting that the Fed could continue to let its asset holdings run down for longer than …
18th October 2023
Further evidence of economic strength in September The 0.3% m/m rise in industrial production in September is another sign that the real economy remains in solid shape. Production was hit by a slight 0.3% m/m drop-back in utilities output, but that was …
17th October 2023
This page has been updated with additional analysis since first publication. Consumption solid heading into Q4 The unexpectedly-strong 0.7% m/m rise in retail sales in September continues the theme of consumer resilience in the face of higher interest …
Confidence suffers from renewed inflation concerns The sharp fall in the University of Michigan consumer sentiment index to a five-month low of 63.0 in early October, from 68.1, probably reflects the hit from recent financial market moves, as well as …
13th October 2023
There appears to be growing support at the Fed for the idea that the recent sell-off in long-term Treasuries reduces the need for further policy rate hikes, but the more persuasive reason for the Fed to pause is that inflation is continuing to ease …
This page has been updated with additional analysis since first publication. Core inflation to remain on downward trend The 0.3% m/m rise in core consumer prices in September suggests, at face value, that the downward trend in core inflation may be …
12th October 2023
Minutes stress uncertainty over economic outlook Despite the ‘higher for longer’ message from the Fed’s updated rate projections last month, the minutes from the September FOMC meeting suggest that officials’ confidence in those forecasts is limited, with …
11th October 2023
Rising long rates a fiscal rather than monetary problem Surge in long yields not all due to higher for longer The conventional wisdom is that the recent surge in Treasury yields is a reaction to the Fed’s “higher for longer” message. But that surge has …
6th October 2023
Despite strong payrolls, wage growth continues to slow The surprisingly strong 336,000 increase in non-farm payrolls in September adds to the evidence on real activity that the economy is holding up well despite the headwind from higher interest rates. …
Q3 exports rebound, but outlook remains weak The trade deficit narrowed to a three-year low of $58.3bn in August, from $64.7bn, as exports increased by $4.1bn or (+1.6% m/m) and imports declined by $2.3bn (-0.7% m/m). The gain in exports was driven by a …
5th October 2023
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
Surveys consistent with moderate growth The small fall in the ISM services index to 53.6 in September, from 54.5, contradicted the rebound in the ISM manufacturing index. Nevertheless, the weighted average of the two ISM surveys are still consistent with …
Although the job openings rate rebounded sharply in August, we suspect that was more noise than a signal that the labour market is enjoying a resurgence. The rest of the JOLTS report presented a more balanced picture, with the latest data still pointing …
3rd October 2023
ISM hits 10-month high; construction boosted by lack of homes for sale The ISM manufacturing index rallied to a 10-month high of 49.0 in September, from 47.6, but that still leaves the index at a level that, historically, has been consistent with GDP …
2nd October 2023
The stakes could not be higher for next year’s presidential election – with the expected head-to-head rematch between Joe Biden and Donald Trump offering starkly contrasting polices on trade, the environment and international relations. Historically, US …
Overview – We expect GDP growth to slow from 2.1% this year to only 0.8% in 2024, with the economy still likely to experience a near recession around the end of this year. Core inflation will continue to fall back to the 2% target by mid-2024, with much …
29th September 2023
GDP-GDI gap left largely unexplained In the end, the comprehensive revisions to the GDP data changed almost nothing of substance – the real economy was still 6.1% bigger in the second quarter of this year than it was pre-pandemic in the fourth quarter of …
