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The outperformance of wage growth for those moving jobs is not a signal that overall wage growth is set to accelerate. The decline in job quits and in the share of firms planning pay rises suggests the recent slowdown evident in most measures of annual …
24th October 2022
While the Fed isn’t likely to follow the Bank of England in pausing QT in response to upward pressure on long-term government bond yields, the reduction of the Fed’s balance sheet could end sooner and be significantly smaller than we had first thought. …
13th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
The Fed stuck to the script in delivering a 75bp rate hike at its September meeting, but in our view still managed to deliver a hawkish message with the accompanying projections , which imply an additional 75bp hike in November and a 50bp move in …
21st September 2022
We think the S&P Global composite PMI’s prediction of an imminent plunge in GDP will prove well wide of the mark, with the latest hard data pointing to growth of 3% annualised in the third quarter. At the same time, however, the ISM activity surveys are …
8th September 2022
Recession risks rising even as GDP rebounds Our composite tracking models suggest that the chances of a recession within the next year have risen markedly. That said, the immediate risks still appear to be low, with the boost to real incomes from the …
31st August 2022
The Republican party is on track to regain control of at least the House in the upcoming midterms, though the recent narrowing in the polls means that is no longer the slam dunk it once appeared. There is a small but growing chance that Democrats retain …
30th August 2022
President Biden has finally unveiled a plan to forgive some student debt via executive order. But the accompanying announcement that the pandemic-era moratorium on student debt will definitely expire at the end of this year means that the changes …
25th August 2022
While history shows that recessions can begin even while employment is still rising, the current rate of payroll employment growth is far too strong to be consistent with an economic downturn. By the same token, although we think an outright contraction …
11th August 2022
The rise in new delinquencies on consumer loans over the first half of the year mostly reflects rising interest costs. With debt levels low, real incomes on track to begin rising again amid a drop back in inflation and the labour market holding up well, …
10th August 2022
With most workers who left during the pandemic mostly returned to the labour force by early 2022, it is little surprise that growth of the labour force has slowed. But the decline in the participation rate over recent months also appears to reflect some …
The 2.5% slump in productivity over the past year – the worst since records began in 1948 – is another illustration of the chasm that has opened up between the GDP and employment figures. The only plausible explanation to our minds is that one or both of …
9th August 2022
The Inflation Reduction Act passed by the Senate over the weekend will, despite its name, do little to rein in inflation, but the climate provisions will make a meaningful difference in efforts to reduce GHG emissions. The bill represents a cumulative …
8th August 2022
The sharper fall in job openings in June signals that labour demand is now beginning to ease more markedly, but with the quits rate little changed and no signs of a pick-up in layoffs, labour market conditions remain extremely tight . (See Chart 1.) …
2nd August 2022
The Fed’s decision to raise interest rates by a further 75bp to 2.25%-2.50% takes them close to their “neutral” level. With inflation set to fall and mounting signs of economic weakness, we suspect officials will be more cautious raising rates from here, …
27th July 2022
Risks rising, but recession still far from inevitable While the deterioration in the survey data and renewed inversion of the Treasury yield curve imply that the risks are rising, our composite models suggest that the economy is still more likely than not …
The sharp slowdown in money growth is set to continue as the Fed’s monetary tightening ramps up, but the resilience of bank lending suggests the impact on the economy will be limited. (See Chart 1.) The Fed’s asset holdings fell by only $22bn in June, …
6th July 2022
There has been little sign that price pressures have eased yet, but the survey evidence suggests that supply shortages continue to improve. That reinforces our view that core goods inflation will fall over the second half of the year. The recent weakness …
29th June 2022
Clear signs of a slowdown, but no recession While our models suggest that recession risks are still low, the Fed’s rapid policy tightening will trigger a marked slowdown in economic growth, which means that the risks are likely to build over the coming …
The Fed’s larger 75bp rate hike came as little surprise to the markets following the worse than expected May CPI data and Monday’s tip-off in the Wall Street Journal. Our view that inflation will remain uncomfortably high and that the economy will avoid a …
15th June 2022
Last Friday, we warned in our Data Response to May’s CPI report that the unexpected rise in headline inflation opened the door to a 75bp rate hike by the Fed this Wednesday. Media reports this afternoon suggest the Fed will indeed hike by 75bp at this …
14th June 2022
We doubt that the low saving rate represents a serious threat to the economy. But with slower employment growth likely to limit gains in income later this year, it adds to our sense that the recent strength of consumption growth won’t last much longer. …
2nd June 2022
While the headline job openings and quits rates remain close to record levels, below the surface there are clear signs that labour shortages are easing in the hardest-hit sectors. That provides some support for the idea that a recession is not necessary …
1st June 2022
Annual money growth is slowing sharply and, given rapidly rising interest rates, wealth losses and QT, that slowdown has a lot further to run. (See Chart 1.) The growth rate of bank loans is accelerating, however, suggesting that fears of an economic …
31st May 2022
The rapid rebuilding of inventories over the past few quarters has left it close to normal levels in some sectors. But the bigger picture is that economy-wide inventories are still exceptionally lean, suggesting that price pressures will ease only …
25th May 2022
Recession risk remains low For all the fears that the tightening of financial conditions over the past few months will push the economy into recession, our composite model still puts the risks over the next 12 months at close to zero, principally because …
With the Fed "highly attentive to inflation risks" it raised its policy rate by a bigger 50bp today, to between 0.75% and 1.00%, and launched its quantitative tightening; with the caps on the value of maturing principal allowed to run off each month set …
4th May 2022
While the job openings and quits rates both edged up again in March, the bigger picture remains that labour market conditions have been stable over the past nine months or so, with few signs that shortages have begun to ease markedly, with the notable …
3rd May 2022
The Fed began its tightening cycle with a 25bp hike today and, despite the uncertainty caused by the war in Ukraine and China's efforts to contain the spread of the Omicron variant, officials look set to hike rates by an additional 25bp at each of the …
16th March 2022
The earlier spike in crude oil prices, slump in stock markets and the flattening of the Treasury yield curve have prompted fears that US economy is headed for a 1970s-style stagflation, but our recession tracking models suggest the risk of a downturn …
Both job openings and quits have fallen back slightly over the past several months, which suggests that wage growth and underlying inflationary pressures should soon stabilise . (See Chart 1.) The Job Openings and Labour Turnover survey (JOLTs) for …
9th March 2022
The surge in gasoline prices in recent days will only add to the drag on households purchasing power from fading stimulus and higher inflation over recent months. But with consumers able to cushion the blow in the near term by reducing their saving, we …
8th March 2022
Chair (pro tempore) Jerome Powell indicated in his congressional testimony today that, with Russia's attacks on Ukraine roiling markets and creating additional uncertainty, he was inclined to support a 25bp hike later this month and that the Fed should …
2nd March 2022
The war in Ukraine will prevent US inflation from falling as much as it otherwise would have in the coming months, but it will have little impact on the real economy, so we doubt it will stop the Fed. Even after the recent escalation of Western sanctions, …
1st March 2022
Goods supply shortages are now easing. Like the recent stabilisation in labour market slack, that improvement has, at least partly, been driven by a slowdown in demand, so it isn’t a sign that economic growth is about to accelerate. But it does support …
The strong finances of state & local governments suggest that they will continue to increase spending at a rapid pace this year. But that won’t come close to matching the huge economic boost from the $2.5trn federal fiscal stimulus last year, which has …
23rd February 2022
The upward revision to household employment and the labour force imply that the labour market recovery has been a little stronger than we previously believed, but measures of slack suggest that labour shortages have been stabilising in recent months and …
10th February 2022
Retirements still explain around half of the shortfall in labour force participation since the pandemic. While the rest of the decline reflects a broad mix of factors, the longer those workers remain out of the workforce, the more likely the fall in …
2nd February 2022
The markets are right to be sceptical of claims that the Fed could begin its tightening cycle with a “shock-and-awe” 50bp interest rate hike next month. At a time when the yield curve is already unusually flat, an aggressive start to the tightening cycle …
The Fed’s announcement that it will “soon be appropriate” to raise interest rates and the numerous hints dropped by Chair Jerome Powell in the post-meeting press conference all but guarantee that a March rate hike is coming. Meanwhile, the Fed set out a …
26th January 2022
The incredibly strong gains in the household survey measure of employment over the final two months of last year, which have come at the same time as the more closely-watched payroll measure showed employment growth slowing, is mainly a catch-up effect. …
12th January 2022
In his Senate re-nomination hearing today, Fed Chair Jerome Powell echoed the increasingly hawkish rhetoric coming from other officials. He admitted that "supply side constraints have been very consistent and very durable" and that the Fed was "not seeing …
11th January 2022
As hinted at in the December FOMC minutes, we expect the Fed will begin shrinking its balance sheet later in 2022. They would start by allowing maturing assets to run off, but if longer-term bond yields were to remain unusually low, we expect officials …
6th January 2022
The Omicron variant is less lethal than previous strains but, even if it doesn’t require the reintroduction of restrictions to mitigate the spread, the huge volume of new cases could still deal a significant hit to the economy over the next month or two, …
5th January 2022
We expect inflation to remain stubbornly high in 2022, forcing the Fed to tighten monetary policy aggressively even though real economic growth underwhelms. The chances of additional fiscal stimulus have dwindled and will drop off the table entirely if …
The Fed delivered an even more hawkish shift at the December meeting than we had anticipated, with the pace of tapering doubled and officials now forecasting three rate hikes next year. Reflecting that new tone, we now expect the Fed to raise rates three …
15th December 2021
The rebound in the job openings rate close to a record high in October means that the number of unemployed Americans per job opening fell to its lowest level since the early 1950s. (See Chart 1.) That underlines the tightness of labour market conditions …
8th December 2021
With cases of the new Omicron variant being reported on several continents now, there is a good chance that it is already present in the United States. We still know almost nothing definitive about whether Omicron is more transmissible or deadly than …
28th November 2021
The Build Back Better Act, which was passed by the House today, would provide only a small boost to economic growth next year. With the economy already running up against capacity constraints and any supply-side benefits of the plan likely to take time to …
19th November 2021
The September Job Opening and Labour Turnover survey shows labour market conditions are far tighter than the 4.6% unemployment rate suggests, and points to continued rapid wage growth. With productivity stagnant, that will add to mounting cyclical price …
12th November 2021