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As the economy slides into a mild recession in the first half of next year, triggering a rebound in the unemployment rate to almost 5% by end-2023, the resulting slowdown in the growth rates of wages and unit labour costs will play a supporting role 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
How many is “various”? The minutes of the Fed’s early-November policy meeting suggest that although most officials were in favour of slowing the pace of rate hikes at upcoming meetings, there was no consensus on how high the peak in rates would ultimately …
23rd November 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 …
We estimate that non-farm payroll employment increased by a more modest 175,000 in November, although that should be sufficient to leave the unemployment rate unchanged at 3.7%. Payroll gains slowing only gradually The pace of monthly gains in non-farm …
Equipment investment refusing to roll over despite surging rates The solid 1.0% m/m rise in durable goods orders in October indicates that business equipment investment continues to hold up reasonably well in the face of higher borrowing costs, helped by …
The resilience of consumer spending is keeping hopes of a soft landing alive. Although GDP growth looks to have slowed in the fourth quarter, and most leading indicators of recession are flashing red, solid retail sales and a jump in vehicle sales …
22nd 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
Consumers refuse to buckle under weight of higher rates The strength of underlying retail sales despite higher borrowing costs is encouraging, but manufacturing is slowly succumbing to the global malaise. The consumer is hanging in there, with retail …
16th November 2022
Manufacturing close to stagnation In contrast to the earlier news of consumer resilience, there are signs of a deterioration in the manufacturing sector, with output rising by only 0.1% in October, September’s gain cut from 0.4% to 0.2%, and downward …
Consumer refuses to buckle under weight of higher borrowing costs The US consumer is hanging in there under the weight of rapidly rising borrowing costs, with retail sales increasing by a solid 1.3% m/m in October. Admittedly, sales last month were …
Sentiment buckles under weight of higher interest rates The drop back in the University of Michigan’s consumer sentiment index to a five-month low of 54.7 in November, from 59.9, appears to reflect the damage that higher interest rates are doing, …
11th 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 …
Goods deflation begins; health insurance flips The better than expected 0.3% m/m increase in core consumer prices in October won’t on its own persuade the Fed to drop its hawkish stance. But we expect this to mark the start of a much longer …
10th November 2022
Goods disinflation broadening; health insurance flips The better than expected 0.3% m/m increase in core consumer prices in October won’t on its own persuade the Fed to drop its hawkish stance. But we expect this to mark the start of a much longer …
Republicans fail to deliver knock-out blow While the results remain too close to call, the Republicans are on course to win only the narrowest of majorities in the House, and control of the Senate will probably be decided by another run-off election in …
9th 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
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
Mixed employment report won’t alter the Fed’s hawkish bent The October employment report had something for everyone, with continued strong gains on the payroll survey while the household measure showed a sharp fall in employment and a rise in …
Mixed employment report won’t alter the Fed’s hawkish bent The October employment report had something for everyone, with payrolls pointing to continued strong employment gains while the household survey showed a sharp fall in employment and a rise in …
Our US Economics team held a briefing shortly after the October data release, in which they answered client questions and addressed key issues around what was happening at the Fed and Congress, including: How far the Fed will raise interest rates; Whether …
Services activity at a two-and-a-half-year low The decline in the ISM services index to a two-and-a-half-year low of 54.4 in October, from 56.7, leaves it at a level that has historically been consistent with only muted GDP growth of around 1% annualised. …
3rd November 2022
Exports fading; better news on unit labour costs A drop back in exports and small rebound in imports means the trade deficit bounced back to $73.3bn in September, from a downwardly revised $65.7bn. With that weakness in exports likely to last for some …
Strength of net exports fading; better news on unit labour costs won’t stop the Fed hiking yet A drop back in exports and small rebound in imports means the trade deficit bounced back to $73.3bn in September, from a downwardly revised $65.7bn. With the …
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
Fed continues with 75bp hike, but open to smaller 50bp increase next month 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 probable drop down to a 50bp hike at …
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 …
Despite the unanticipated strength in recent months, there are still good reasons to expect core inflation to fall markedly next year. That moderation will not require a deep recession and/or significant rise in the unemployment rate, although we do …
Our probit models use the variables that historically have been the most accurate in predicting recessions and generate easy-to-interpret recession probabilities for various time horizons. For methodology, see below. If you can't see the full interactive …
Our underlying inflation indicators measure core inflation by tracking common changes across broad baskets of CPI components. Our underlying inflation measures use dynamic factor models to identify the common changes in prices from very broad baskets of …
The job openings and quit rates were little changed in September (see Chart 1), but the downward trends over the past six months point to an easing of labour market conditions which will weigh more heavily on wage growth next year. While the initial turn …
1st November 2022
Goods price pressures evaporating as demand weakens The further fall in the ISM manufacturing index to 50.2 in October, from 50.9, illustrates that global economic weakness and the earlier surge in the dollar are catching up with the factory sector. But …
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
Wage growth gradually slowing, even as economy holds up Although core PCE inflation rebounded to 5.1% in September and real consumption looks to have more momentum than previously thought, the Fed may still draw some encouragement from the more modest …
We are pencilling in a further step down in non-farm payroll growth to 225,000 in October and we expect that payrolls will be falling outright by early 2023. Payroll gains have been slowing from their unusually rapid clip earlier in the year, with the …
27th October 2022
GDP rebounds, but underlying demand stagnates The 2.6% annualised rebound in third-quarter GDP looks impressive, but it was entirely due to a 2.8%-point boost from net external trade. Final sales to private domestic purchasers, a better measure of …
GDP rebounds, but underlying demand stagnating The 2.6% annualised rebound in third-quarter GDP looks impressive, but it was entirely due to a 2.7% boost from net external trade. Final sales to domestic purchasers, a better measure of underlying economic …
Stubborn core inflation points to fourth consecutive 75bp rate hike But pace of tightening likely to slow as policy becomes more restrictive Recession and falling inflation to prompt rate cuts by the end of next year Fed officials are gearing up for …
26th October 2022
PMIs point to rapid slowdown The drop back in the S&P Global composite PMI for the US to 47.3 in October, from 49.5, means that indicator has now been below the 50 boom-bust level for four months. Admittedly, the ISM survey indicators remain at much …
24th October 2022
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 …
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
The continued strength of core inflation in September has sealed another 75bp rate hike from the Fed at the November FOMC meeting and raises the chances of that aggressive pace of tightening continuing in December too. Nevertheless, the more hawkish the …
19th October 2022
Manufacturing can’t defy global slowdown for much longer The 0.4% m/m gain in manufacturing output in September, together with some modest upward revisions to prior months, suggests that the factory sector is just about holding up despite the …
18th October 2022
Manufacturing can’t deft gravity for much longer The 0.4% m/m gain in manufacturing output in September, together with some modest upward revisions to previous months, suggests that the factory sector is just about holding up despite the deterioration in …
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