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The resurgence in female prime-age participation to a record high is helping to support labour force growth, but the recent rapid pace of improvement is likely to fade soon. Although the overall labour force participation rate continues to be held down by …
17th July 2023
The resilience of consumption over the past year is partly because households have been willing to save less of their income than before the pandemic, which lends some support to the idea that consumers have been drawing down a stock of “excess” savings …
13th July 2023
The surge in immigration and improvement in labour supply has helped ease wage growth moderately. But, with limited scope for a further rapid recovery in the labour force, we think a sustained period of weaker labour demand is required to pull wage …
10th July 2023
The fall in job openings in May suggests that labour shortages continue to ease, although the rebound in the job quits rate implies that wage growth is set to slow only gradually. The renewed fall in the job openings rate to 5.9%, from 6.2% in April, …
6th July 2023
Central bankers have struck a hawkish tone at the ECB’s forum in Sintra this week, suggesting that rates haven’t yet peaked and cuts are not on the cards for some time. But there were some interesting differences in tone. Most notably, the ECB and BoE …
29th June 2023
Near-term risks ease, but still high Easing financial conditions, improving consumer sentiment and the stabilisation in housing suggest that the risks of an imminent recession have eased slightly. Nonetheless, our tracking models still imply that an …
22nd June 2023
As expected, the Fed held its policy rate unchanged at between 5.00% and 5.25% today, but it made clear in the accompanying statement that pause was only to allow officials to “assess additional information and its implications for monetary policy”. In a …
15th June 2023
The debt ceiling deal constitutes a modest fiscal tightening, principally because it will guarantee the resumption of student loan repayments this summer, but we aren’t worried that the post-deal surge in Treasury debt issuance will push up borrowing …
1st June 2023
The April JOLTS data suggest that the gradual easing in labour market conditions continues, which is putting downward pressure on wage growth. Although the job openings rate edged back up to 6.1% last month, from 5.9%, the timelier data from Indeed …
31st May 2023
The debt ceiling stand-off will probably now drag on into early June, setting up the prospect of a near-default before a bipartisan bill is finally passed by Congress, possibly only after a more serious bout of market turmoil. The risk of a formal debt …
25th May 2023
The recent turmoil in the banking sector doesn’t appear to have triggered a severe further tightening in credit conditions, but since lending standards were already being tightened to a degree only previously seen during recessions, the lack of any …
8th May 2023
The Fed’s new policy statement provides the clearest hint yet that the 25bp rate hike today is likely to be the last. We expect economic weakness and a sharper-than-expected drop back in core inflation to convince officials to start cutting rates again …
3rd May 2023
A bipartisan deal to raise the debt ceiling alongside modest cuts to government spending still appears to be the most likely way out of the current impasse. It's possible that moderate Republicans will step in to help the Democrats push through a …
The decline in job openings to a near two-year low of 9.6 million in March, from a peak of 12.1 million a year earlier, suggests that, even without a rise in the unemployment rate, labour market conditions are nevertheless easing and are consistent with a …
2nd May 2023
The collapse of First Republic Bank is no big surprise – it had been teetering on the edge since suffering $100bn in deposit withdrawals mostly in March – but it’s a timely reminder that banking turmoil will continue to flare up periodically. After …
1st May 2023
The recent undershooting of CPI used vehicle prices relative to wholesale auction prices appears, at least partly, to reflect a squeeze on dealer margins as demand has cooled. The upshot is that we shouldn’t necessarily expect the CPI measure to catch up …
19th April 2023
Models suggest recession coming soon Our composite models suggest the economy was on track to fall into recession soon even before the impact of the banking turmoil feeds through. There also appears to be a lower, but rising, chance that a recession has …
5th April 2023
The sharp fall in job openings in February shows that labour demand was cooling even before the recent banking turmoil and provides another reason to think that the Fed’s tightening cycle is nearly over. The fall in vacancies and downward revision to …
4th April 2023
Narrow money growth has turned negative as savers have shifted out of bank deposits and into money market funds and bonds, which now offer significantly higher returns. (See Chart 1.) Bank loan growth remains robust but, with the tightening in credit …
Fears over small regional banks in the US have focused on the unrealised losses on debt securities (see Chart 1 ) and deposit insurance but, in what would have echoes of the savings and loan crisis, maybe we should be more worried about deposit flight due …
24th March 2023
The 25bp rate hike and new projections unveiled by the Fed today were towards the more dovish end of potential outcomes. Despite recent strong economic data, officials acknowledged the likely hit from the banking sector turmoil and left their end-year …
22nd March 2023
While the Credit Suisse rescue might draw a line under that particular institution’s problems, it is clear that confidence in the financial sector overall is still extremely fragile. So regardless of whether more financial institutions run into trouble, …
20th March 2023
Even if the collapse of several mid-tier banks doesn’t develop into a full-blown systemic crisis, it will more than likely trigger a credit crunch. That raises the risk that the economy will suffer a harder landing, which would accelerate the needed …
13th March 2023
The circumstances of the Silicon Valley Bank (SVB) collapse are unique enough that it probably won’t trigger a widespread financial contagion. Nevertheless, it is a timely reminder that when the Fed is singularly focused on squeezing inflation by jacking …
10th March 2023
The JOLTS survey showed a drop back in job openings in January, with the timelier job postings data from Indeed pointing to a more marked deterioration in labour market conditions in February. (See Chart 1.) The private job openings rate has …
8th March 2023
Fed Chair Jerome Powell confirmed today that interest rates are set to rise higher than we previously anticipated. But with most evidence still pointing to economic weakness and markedly lower inflation this year, we still believe the Fed will begin …
7th March 2023
While it is in America’s strategic interests to build stronger economic ties with allies to counter China’s growth, its protectionist tendencies could undermine those goals and blunt the effectiveness of its interventionist foreign policy. Our work on …
22nd February 2023
Surge in sales erases Q1 recession fears The massive 3.0% m/m surge in retail sales in January may have been partly related to the unseasonably mild winter in the Northeast but, alongside the unexpected strength of payroll employment, it nevertheless …
15th February 2023
The unexpected surge in payroll employment in January has led to claims of an economic resurgence that will force the Fed to keep hiking interest rates but, on balance, we still think the real economy is losing momentum and will eventually tip into …
8th February 2023
The surge in interest rates and tightening in credit conditions last year resulted in a broad-based plunge in loan demand in the fourth quarter. Most banks expect to continue tightening standards this year, suggests the recent drop back in long-term …
7th February 2023
As expected following a blitz of speeches by officials ahead of the blackout window, the Fed raised its policy rate by a smaller 25bp, to between 4.50% and 4.75%, but tempered any hopes of a major dovish shift by maintaining the language in the statement …
1st February 2023
Despite the rebound in JOLTS job openings in December, voluntary quits fell slightly and point to a further moderation in both wage growth and PCE core services (ex housing) inflation. Job openings rebounded to 11.0 million in December, from 10.4 …
On the precipice of a recession Our tracking models now suggest the economy is more likely than not to be in recession in three months’ time, supporting the message from the latest surveys and hard activity data that GDP is likely to contract in the first …
31st January 2023
It’s well known that, with the yield curve inverting the Fed is now racking up losses, but what is less appreciated is that the higher interest payments it is making are going mostly to foreign banks and money market funds. The Fed earns interest on …
30th January 2023
The Fed’s hawkish transformation has been so marked that, if its forecasts are to be believed, over the next couple of years it would effectively be adopting the same reaction function last followed during the Greenspan and Bernanke eras between 1987 and …
19th January 2023
Raising the federal debt ceiling later this year will require bipartisan compromise, most likely involving measures to reduce the budget deficit modestly. But a deal probably won’t be reached until the last minute, raising the risk that the deadline to …
17th January 2023
The apparent resilience of employment in December has boosted hopes that the US can avoid a recession, but we still think that is unlikely. Employment is a coincident indicator whereas the only genuine leading indicators in the employment report – …
9th January 2023
Models point to recession soon Our composite models continue to suggest that a recession this year is a near-certainty, with the implied odds of the economy being in recession in six months’ time and in one year’s time both above 90% as of December. …
5th January 2023
The latest JOLTS data suggest that labour market conditions remain quite tight and a lot more adjustment is needed to ensure that the drop back in price inflation to 2% will be sustained. While the job openings rate was unchanged at 6.4% in November, …
4th January 2023
Despite the increasingly compelling evidence that core inflation will fall sharply next year, the Fed doubled down on its hawkishness today. We now expect two 25bp hikes from the Fed next year, with the fed funds rate peaking at 4.75% to 5.00% in …
14th December 2022
Despite some mixed signals in the recent data, we still expect the tentative easing of labour market conditions already seen to push wage growth lower soon, with that slowdown gathering pace as employment growth continues trending lower. The November …
13th December 2022
The worsening tripledemic of Covid, influenza and RSV is unlikely to have a significant impact on economic growth, but it could weigh on employment and hours worked over the next few months. Covid case numbers remain relatively low but have been rising …
11th December 2022
Money growth has stagnated as the Fed’s monetary tightening ramps up, and, while bank loan growth remains robust, we expect it to fade in response to the lagged impact of higher rates and tighter credit conditions. (See Chart 1.) To the extent that …
8th December 2022
The better-than-expected 263,000 gain in non-farm payroll employment suggests it’s still the best of times in the labour market but, digging below the surface, there are worrying signs that it could be the worst of times soon. Although non-farm payroll …
6th December 2022
The further falls in job openings and voluntary quits in October indicate that labour market conditions are continuing to ease gradually, which should keep downward pressure on wage growth. The fall in the job openings rate to 6.3% in October left it in …
30th November 2022
Warning lights flashing red despite solid activity data Despite the recent resilience of the hard economic data, the most reliable forward-looking indicators suggest that a recession is unavoidable – our six-month ahead composite model puts the odds at …
28th November 2022
The Fed’s mounting losses are an expected result of surging interest rates and will not prevent officials from continuing to tighten policy, nor will they require the Treasury to step in and “recapitalize” the central bank. But it does mean that …
8th November 2022
Higher interest rates have dramatically curbed the demand for home mortgages and auto loans, but there is only limited evidence of banks tightening lending standards, which suggests that they expect loan losses to remain relatively muted . The Fed’s …
7th November 2022
The Fed raised its policy rate by another 75bp today, to between 3.75% and 4.00%, but laid the groundwork in the accompanying statement for a downshift to a 50bp hike at the next meeting in mid-December. With Chair Jerome Powell noting repeatedly that the …
2nd November 2022
2023 recession increasingly likely Our composite tracking models suggest that the economy is increasingly likely to fall into recession in 2023, although the risks of a downturn beginning before the end of this year still appear relatively low. Our …