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The April employment report showed that while jobs growth remains solid enough, it is still trending lower and the surveys suggest activity growth is slowing too. With ongoing concerns over regional banks looking more likely to result in a further …
5th May 2023
Although underlying activity growth rebounded in the first quarter, while wage and price inflation remained too high, we expect the second quarter to bring a sharper slowdown across the board. GDP data show weaker start to year The first-quarter GDP …
28th April 2023
We now expect the Fed to press ahead with another 25bp rate hike at the FOMC meeting early next month but, with the economic data softening and the risks of a debt ceiling crisis rising, we still think the Fed’s next move after that will be a cut. The …
21st April 2023
The strength of the March CPI data may be enough to persuade the Fed to squeeze in a final 25bp rate hike at the early-May FOMC meeting. But with mounting evidence that economic growth is weakening again, we doubt that strength will last much longer. Core …
14th April 2023
Economy losing forward momentum Only two months later the economy’s apparent strong start to the year in January looks increasingly like it was a brief sugar high, in part due to the unseasonably mild winter and possibly the outsized cost-of-living …
7th April 2023
Strong start to the year begins to flag After an unexpectedly strong start to the year in January, which was mostly maintained in February, the March data will tell us whether that early strength was a temporary weather-related spike or a genuine pick-up …
31st March 2023
The Fed will need to wait at least another few weeks for clearer evidence of the impact from the recent banking sector turmoil, but we expect economic weakness will convince officials to move to the side-lines before long. Although the Fed pressed ahead …
24th March 2023
After concerns over US regional banks progressed to panic over the health of a Global Systemically Important Bank in Credit Suisse, a sense of calm was returning by the end of this week. No new banks have followed SVB and Signature to the wall, the ECB …
17th March 2023
Powell in hawkish mood Fed Chair Jerome Powell confirmed this week that interest rates are set to rise higher than we previously anticipated. Powell noted that the strength of the January activity, employment and inflation data indicated that …
10th March 2023
The February employment report and Fed Chair Jerome Powell’s testimony to Congress next week should give a clearer indication of whether recent talk of interest rates going “higher for longer” is justified. Longer, but not necessarily higher? Market rate …
3rd March 2023
With markets responding to recent strong data by ramping up interest rate expectations, there doesn’t yet seem to be much need for the Fed to embark on a renewed hawkish turn. The income and spending data confirmed that real consumption rebounded …
24th February 2023
Echoing the unexpectedly large increase in payroll employment last month, January’s retail sales and manufacturing output data were unquestionably strong too. Admittedly, retail sales appear to have been boosted by problems with the seasonal adjustment, …
17th February 2023
Markets have continued to swing round to the Fed’s view that rate cuts are unlikely this year. We still believe that those cuts are coming, however, as economic growth disappoints and core inflation falls more rapidly than the Fed is expecting. Markets …
10th February 2023
The strength of the early January data appears to rule out the possibility of an imminent recession, but that won’t prevent inflation from continuing to fall sharply from here. Jobs report appears to justify Fed’s caution Fed officials seem to agree …
3rd February 2023
Recession denial in full effect The commentary this week dismissing the validity of the Conference Board’s leading indicator (see here ), which is currently giving an unambiguous recession warning, reminds us of the old quote from JK Galbraith that “faced …
27th January 2023
The weakness of retail sales and manufacturing output over the final two months of 2022 has reignited market fears of a hard landing this week, with the Fed’s latest Beige Book acknowledging that activity appears to have ground to a halt. Admittedly, …
20th January 2023
Core CPI continues to moderate The 0.1% m/m decline in headline CPI in December was principally due to a 9.4% m/m drop in gasoline prices, but core consumer prices also increased by a more modest 0.3% m/m, extending the run of weaker monthly gains to …
13th January 2023
The data this week suggested that the weak global backdrop is being compounded by a deterioration in domestic activity, although the labour market still appears to be in good health. Domestic weakness adding to external headwinds The November trade data …
6th January 2023
This week brought further signs of slowing activity growth and falling inflation, trends we expect to intensify next year. Meanwhile, Congress has averted a government shutdown, but there appears to be a growing risk of another damaging stand-off over the …
23rd December 2022
Despite the Fed’s continued hawkishness, the further softening in core inflation and weakness of the early activity data in November leave us more convinced that the FOMC will be cutting interest rates again by the end of next year. Fed’s new …
16th December 2022
Fed could be upstaged by CPI data The Fed is used to holding centre stage, but next Wednesday’s policy announcement could end up being overshadowed by the November CPI data, due for release on Tuesday. If we’re right and core prices increased by another …
9th December 2022
With weaker growth overseas and the drag from the stronger dollar now pushing exports lower, the resilience of consumption is the only thing keeping the economy from falling into recession. Mixed signals for Q4 GDP Although third-quarter GDP growth was …
2nd December 2022
Despite the resilience evident in the latest round of hard data, our recession tracker models suggest the odds of a downturn next year are still rising. Odds of recession rising Our recession tracker indicators all but guarantee the economy will contract …
23rd November 2022
This week Fed officials pushed back against the market rally in the wake of October’s unexpectedly weak CPI report, but with only limited success. Despite officials reaffirming that they still had “a ways to go” in tightening policy and that they …
18th November 2022
While the outcome of the midterms remains unclear, far more important for the economy was October’s softer-than-expected core CPI data, which support our view that the Fed won’t need to raise interest rates as far as markets had feared. Softer core CPI …
11th November 2022
This week’s FOMC meeting may have dashed hopes that the Fed will follow the recent dovish tilts of some other central banks. But we still think Fed officials are underestimating the degree to which their aggressive rate hikes will put downward pressure on …
4th November 2022
The 2.6% annualised rise in third quarter GDP was a lot worse than it looked, with growth in underlying demand grinding to a near-halt. At the same time, there are mounting signs that economic weakness will soon feed through to disinflation in core …
28th October 2022
This week’s data releases painted a mixed picture of activity: from the good, to the bad, and the just plain ugly. Manufacturing sector holding up well First the good; manufacturing output increased by 0.4% m/m in September, following decent monthly gains …
21st October 2022
We still think it’s only a matter of time before the easing of inflationary pressure evident in the surveys and other private-sector data shows up in the official figures. But the September CPI report points to the Fed hiking by another 75bp not just in …
14th October 2022
What could the Fed "break"? The recent liquidity issues faced by UK pensions funds and problems at a few European banks have led to speculation that the Fed’s interest rate hikes will trigger some form of financial instability which, via an adverse …
7th October 2022
Annual revisions show a weak real economy The big gap that had opened recently between the real GDP and real GDI (gross domestic income) data was partly resolved in the annual revision released this week, but not in the way the Fed would have liked, …
30th September 2022
The Fed’s transformation from inflation-denier back to Volcker-style inflation-slayer is all but complete. As Chair Jerome Powell acknowledged in his press conference this week, “we have got to get inflation behind us. I wish there were a painless way …
23rd September 2022
The economic data this week suggest that slowing activity growth isn’t yet putting downward pressure on core inflation, which is likely to see the Fed remain in hawkish mode at its meeting next week. But we still think that picture could change quite …
16th September 2022
Fed still in hawkish mood In the run-up to the Fed’s next policy announcement on 21 st September, the release of August’s consumer price data next Tuesday could still be pivotal in determining whether the Fed will follow the ECB and Bank of Canada with …
9th September 2022
Our tracker models suggest the odds of a recession are rising although, on balance, we still expect a period of weak growth rather than an outright contraction. If we are wrong and a recession drives the unemployment rate up more significantly, then that …
2nd September 2022
In a hawkish Jackson Hole speech, Fed Chair Jerome Powell argued that “restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening …
26th August 2022
With the rebound in activity growth in July coming against a backdrop of easing inflation, we still think the Fed will hike rates by a smaller 50bp next month. July data should ease …
19th August 2022
The drop back in CPI inflation in July wasn’t enough alone to convince Fed officials to change their plans for interest rate hikes. But we expect the better news on inflation to continue over the coming months, which will eventually persuade the Fed to …
12th August 2022
Pelosi goes to Taiwan With the Democrats at risk of losing control of Congress in November’s midterm elections, House Speaker Nancy Pelosi’s visit to Taiwan this week was probably partly motivated by a need to bolster the party’s national security …
5th August 2022
More signs of weakness This week continued the run of downbeat economic data, with the 0.9% annualised decline in GDP in the second quarter, following the 1.6% decline in the first, inevitably leading to a fresh round of calls that the economy has fallen …
29th July 2022
Fed officials may have briefly contemplated an even bigger hike following the news of the further surge in inflation in June but, with inflation expectations dropping back and the incoming news on activity softening, we expect another 75bp hike next week. …
22nd July 2022
The bigger-than-expected rise in CPI inflation to 9.1% in June triggered speculation that the Fed might follow the Bank of Canada with a 100bp rate hike later this month. But the disappointing activity data and drop back in inflation expectations means …
15th July 2022
With the June employment report suggesting fears of an imminent recession are misplaced, the Fed looks set to press ahead with aggressive rate hikes over the coming months. That said, recent sharp declines in commodity prices may, if sustained, soon give …
8th July 2022
We learned this week that consumer spending lost more momentum through the second quarter than initially thought, while the incoming survey evidence for June suggests the quarter ended on a weak note. Second quarter GDP growth weak, but not negative The …
1st July 2022
Chair Jerome Powell signalled this week that the Fed will press ahead with its planned series of aggressive interest rate hikes, even as evidence mounts that economic growth will be weak in the second half of the year. Powell reiterates Fed’s hard-line …
24th June 2022
50bp or 75bp in July Fed Chair Jerome Powell suggested that officials were split on whether to continue with another 75bp rate hike at the next meeting in late July, or to revert to 50bp increases. We have another super-sized increase pencilled in, mainly …
17th June 2022
Inventories still look lean Target’s admission this week, that its profits would take a hit as it tried to reduce unwanted inventory, led to claims that there was an economy-wide inventory glut. Some took that to mean higher prices and interest rates were …
10th June 2022
The 390,000 gain in payrolls employment last month demonstrates that the real economy is holding up well, although the further rise in energy prices will put households under even more pressure. Gas prices headed to a record $5 gallon With no end in sight …
3rd June 2022
Strong consumption growth fuelled by savings The 0.7% jump in real consumption in April, together with the upward revision to March’s gain leaves consumption on track for a 5% annualised gain in the second quarter. Thanks to a rapid rebound in exports, …
27th May 2022
With China’s economy hampered by its zero-covid lockdowns, and Europe’s economy suffering because of the massive surge in imported energy prices caused by the war in Ukraine, the American consumer has once-again emerged as the world’s spender of last …
20th May 2022