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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
New ADP index provides little insight into official payrolls The ADP’s revamped employment report showed private payrolls rising by a muted 132,000 last month, but with only limited details as to how they arrived at that number, we have little confidence …
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
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
Powell continues pushback against early pivot Fed Chair Jerome Powell’s keynote speech at Jackson Hole added to the tide of recent Fed speakers pushing back against market expectations that the Fed is close to pivoting toward rate cuts. Nevertheless, as …
Inflation moderates, real consumption growth still muted The 0.2% m/m increase in real personal spending was a little weaker than we had expected and, as a result, we now expect third-quarter real consumption growth to be 1.6% annualised, whereas we …
We forecast a smaller, but still rapid, 350,000 gain in non-farm payrolls in August, with the unemployment rate remaining at 3.5%. The blowout 528,000 gain in non-farm payrolls in July appeared to underline the ongoing strength of the labour market so far …
25th 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 …
Economy holding up better than headline GDP suggests The upward revision to second quarter GDP, to a contraction of 0.6% annualised, from 0.9%, together with the news that real Gross Domestic Income (GDI) expanded by 1.4% in the second quarter, after a …
Durables dragged down by slump in defence orders The stagnation in durable goods orders in July was principally due to a 50% m/m slump in defence aircraft orders, which are both volatile and not reflective of the strength of private demand. Excluding …
24th August 2022
Composite PMI plunges deep into recessionary territory The further slump in the S&P Global composite PMI for the US to 45.0 in August, from 47.7, leaves it at a level consistent with a deep recession. Based on the historical relationship, it suggests GDP …
23rd August 2022
After a year-long contraction in real disposable incomes, the sharp declines in energy prices over recent weeks are finally providing some relief. Alongside continued strong employment growth, we calculate that the drop in retail gasoline prices to …
22nd 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
Lower gas prices helping to support spending on other items While overall retail sales were unchanged in July, the details were far more encouraging, with a price-related fall in gasoline sales freeing up households to increase spending on other goods . …
17th August 2022
Darkening global backdrop suggests manufacturing strength won’t last The 0.6% m/m rise in industrial production in July was much stronger than we expected and provides another clear sign that the economy is still in expansionary territory. That said, the …
16th 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
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 …
Headline inflation has peaked, although core will remain elevated Consumer prices were unchanged in July and there's a good chance that prices will fall outright in August. With core consumer prices increasing by a more modest 0.3% m/m last month, which …
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
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
Labour market still hot The unexpected acceleration in non-farm payroll growth in July, together with the further decline in the unemployment rate and the renewed pick-up in wage pressures, suggests the economy is still a long way from recession. That …
Strength of exports unlikely to last much longer The fall in the trade deficit to an eight-month low of $79.6bn in June, from $84.9bn, leaves net trade well placed to support a rebound in GDP in the third quarter. But with the surveys consistent with …
4th 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
Manufacturing downturn set to continue Although the ISM manufacturing index fell again in July, to 52.8 from 53.0, the rate of decline does at least appear to be slowing and, for now, it remains consistent with GDP growth of roughly 1.5% annualised – in …
1st 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
We forecast that non-farm payrolls rose by 250,000 in July which would represent a continuation of the slowdown in the labour market, but would still be far from recessionary territory . Non-farm payroll growth was still as strong as 372,000 in June, …
28th July 2022
Falling GDP not enough to prompt Fed pivot The 0.9% annualised fall in GDP in the second quarter is disappointing but doesn’t mean the economy is in recession. The decline was partly due to a huge drag from inventories, while most other coincident …
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 …
Investment growth slowing despite jump in orders The jump in durable goods orders in June mainly reflected a surge in defence aircraft orders. Private equipment investment growth still looks to have slowed in the second quarter, although the latest trade …
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 incoming activity data now show clearer signs of weakness, particularly in the most interest-rate sensitive components of spending. But there are still few signs of that moderation morphing into a recession. The rise in mortgage rates has weighed on …
21st July 2022
With inflation expectations contained, Fed won’t risk abrupt 100bp shock Pace of rate hikes likely to slow once Fed has policy back to neutral stance Fed funds rate to peak at close to 4% early next year and fall below 3% by end-2024 The Fed is set to …
20th July 2022
Overview – We expect the economy to avoid a recession only narrowly, as higher interest rates trigger a contraction in residential investment and weakness in consumption growth. Core inflation has been stronger than we expected this year but, on balance, …
19th 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
Further evidence of growth slowdown The decline in industrial production in June, led by a fall in manufacturing output, could reflect weaker demand for goods, but we suspect that it is also due to the zero-covid shutdowns in China, which temporarily …
Strength of sales almost entirely due to surging prices The 1.0% m/m rise in retail sales in June isn’t as good as it looks, as it mainly reflects the boost to nominal sales values from surging prices. Real consumption appears to have been largely …
Another inflation shocker nails on a 75bp hike this month The stronger than expected 1.3% rise in consumer prices in June, which pushed headline inflation to 9.1%, from 8.6%, nails on another 75bp rate hike at the July FOMC meeting. But with commodity …
13th July 2022
We think that the economy is well-placed to handle higher interest rates and anticipate a period of weak economic growth rather than an outright recession: Rate-sensitive spending is a relatively small share of the economy right now, there are no …
11th 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
Robust payrolls undermine recession claims The strong 372,000 gain in non-farm payrolls in June appears to make a mockery of claims the economy is heading into, let alone already in, a recession. That may be enough to solidify the case for another 75bp …
Net trade to save Q2 GDP growth The further narrowing in the trade deficit in May reflects the strength of exports and implies that net trade provided a decent boost to second-quarter GDP growth, which we estimate was close to 1% annualised. But with …
7th July 2022
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
Further evidence of slowdown rather than collapse The fall in the ISM manufacturing index to a two-year low of 53.0 in June, from 56.1, will probably add to fears over the health of the economy. That said, for now it is still consistent on past form with …
1st 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 …
We forecast that payroll employment growth slowed fairly sharply in June, but remained solid at 250,000. That should be enough to keep the Fed on track for another 75bp rate hike in July. Employment growth has averaged a rock solid 400,000 over the past …
30th June 2022
