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Collapse in control sales partly reflects seasonal adjustment issue The 1.9% plunge in retail sales in December in part reflects what appears to be a problem with seasonal adjustment process around the holidays. The initial Omicron wave appears to have …
14th 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
Inflation hits 40-year high of 7% CPI inflation hit a 40-year high of 7.0% in December and, although the headline rate has probably peaked now, core CPI inflation increased to 5.5% last month and will continue to climb toward 6% over the coming months. …
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
Omicron tsunami shows few signs of peaking The surge in Omicron infections has quickly developed into a full-blown tsunami, with the seven-day national average now close to 600,000 – three times higher than the previous peak last winter. (See Chart 1.) …
7th January 2022
Full employment to drive sustained rapid wage growth While the 199,000 gain in non-farm payrolls once again disappointed the consensus, a much larger gain in the household measure of employment and a tepid rise in participation pushed the unemployment …
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
Net trade was a drag on fourth quarter GDP after all The sharp rebound in the trade deficit in November means that net trade is now on track to be a small drag on economic growth in the fourth quarter, rather than a small boost as we had previously …
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 …
Survey too early to capture Omicron disruption The ISM manufacturing index suggests that the pace of industrial activity growth remained reasonably solid at the end of last year, but the survey came too early to capture the potentially significant supply …
4th January 2022
The chaos caused by the rapid spread of the Omicron variant came too late to have much effect on December payrolls, which we estimate increased by a healthy 350,000. But the huge numbers of people being told to isolate could drive a significant drop in …
Falling real incomes & virus drag point to consumption slowdown The November durable goods and income & spending data are consistent with our estimate that fourth-quarter GDP growth was 6.5% annualised, but point to a slowdown in early 2022. Strong gains …
23rd December 2021
The Omicron variant has supercharged the seasonal wave of virus cases sweeping parts of the US, adding to the existing headwinds to consumption growth over the coming months. (See Chart 1.) In contrast to governments in Europe, however, there are still …
21st December 2021
Market pricing suggests investors remain unconvinced that the now-hawkish Fed will hike interest rates as high as officials are projecting, either because inflation will drop back more quickly or because real economic growth will falter. In this case, we …
17th December 2021
Output rising as shortages ease The solid 0.7% increase in manufacturing output last month suggests that shortages are gradually easing. With demand still strong, the latest surveys are still consistent with manufacturing output expanding at a near-5% …
16th December 2021
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
Shortages partly explain weak start to Holiday season With prices rising sharply last month, the muted 0.3% m/m rise in retail sales values suggests that consumption was little changed in real terms. That won’t stop the Fed from accelerating the pace of …
QE to end sooner and more rate hikes in forecast Following Chair Jerome Powell’s markedly more hawkish tone at his recent congressional testimony, markets are braced for the Fed to pivot hard at next week’s FOMC meeting. Futures pricing suggests there is …
10th December 2021
Inflation hits near 40-year high Consumer prices rose by 0.8% m/m in November, taking the annual CPI inflation rate up to a near 40-year high of 6.8% but, with energy prices falling sharply in recent weeks, last month probably marked the peak. The same is …
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
Fed markedly shifts stance, with inflation no longer seen as transitory Taper will be stepped up – asset purchases to end in spring rather than summer We now expect two hikes in 2022, followed by four hikes in 2023 In sharp contrast to the surprisingly …
Net trade to provide big boost to Q4 GDP growth The 8.1% m/m surge in exports in October means that net trade is on course to add about 1% point to fourth-quarter GDP growth, which we think will be 6.5% annualised, and provides more evidence that global …
7th December 2021
Powell signals turning point in inflation fight Fed Chair Jerome Powell’s congressional testimony this week was markedly more hawkish. We wouldn’t characterise it as a full-blown Volcker moment. But there could be parallels with former Chair Alan …
3rd December 2021
Employment growth stumbles, but details more positive The disappointing 210,000 gain in non-farm payrolls in November suggests the labour market recovery was faltering even before the potential impact of the new Omicron variant, possibly due to the rising …
Supply shortages still acute, but no longer worsening The November ISM manufacturing survey suggests that supply shortages are yet to ease significantly, but it does at least echo anecdotal reports that they are no longer getting worse. The slight rebound …
1st 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
Powell keeps his job; Brainard gets a promotion The announcement on Monday morning that President Biden would nominate Jerome Powell for a second term as Fed Chair was largely as expected, although the unexplained delays in making it official may have …
24th November 2021
Fourth quarter GDP growth to be more than 5% annualised The 0.5% fall in durable goods orders was not as bad as it looked, given that it was entirely due to a fall in volatile aircraft orders. But the bigger news this morning was the huge 10.7% m/m surge …
We expect non-farm payrolls to have risen by a solid 500,000 in November, but the growing risk of a winter COVID wave and a dwindling supply of available workers look set to weigh on employment growth soon. October’s 531,000 gain in payrolls was helped by …
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
Sales and activity both strengthening The 1.7% m/m increase in retail sales values together with the 1.6% m/m gain in industrial production point to a resurgence in momentum in October, following the slowdown in third-quarter GDP growth to only 2.0% …
Whether Jerome Powell or Lael Brainard is given the nod over the coming days, the next 12-18 months are shaping up to be an unusually challenging period for the Fed Chair. The October data showed a renewed jump in CPI inflation to a 30-year high, with …
18th November 2021
Supply chain woes unlikely to ease quickly The strong 1.6% m/m rebound in industrial production in October came as the unwinding of earlier hurricane-related disruption and a partial recovery in motor vehicle production boosted manufacturing output. But …
16th November 2021
Spending on goods rebounds, but services subdued The 1.7% m/m rise in retail sales in October, driven by a similarly strong increase in underlying control group sales, suggests that real consumption will rebound to between 3% and 4% annualised in the …
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
It’s finally infrastructure week Infrastructure week has finally arrived, with President Biden due to sign the bill into law on Monday. The infrastructure bill is often touted as a $1.2bn package, but much of that is re-purposed funds. Only $550bn is …
Inflationary pressures building throughout the economy The 0.9% m/m surge in consumer prices in October illustrates that the upward pressure from supply shortages remains intense and that, even when those effects eventually fade, rising cyclical pressures …
10th November 2021
While the Fed announced tapering as expected at its meeting this week, the big surprise was how dovish the language in the statement and press conference remained, which suggests to us an increasing risk that the Fed is falling behind the curve. Chair …
5th November 2021
Stronger payroll growth, but no signs of a rebound in labour supply The stronger 531,000 gain in non-farm payrolls in October suggests the economy is rebounding rapidly from the initial Delta wave but, despite easing virus concerns, there was absolutely …
Supply chain backlogs to keep trade growth subdued The sharp widening in the trade deficit to $80.9bn in September, from $72.8bn, should soon start to reverse as oil exports recover from the disruption caused by Hurricane Ida. But ongoing global supply …
4th November 2021
While attention has been focused on how shortages and surging prices are holding back real consumption, those same factors are weighing even more heavily on business equipment investment. Faced with widespread labour shortages, low borrowing costs and …
The Fed unveiled its QE taper today, as widely expected, but is still insisting that the surge in inflation is "largely" transitory, which suggests the doves have the upper hand. The Fed announced that it will reduce the pace of its asset purchases …
3rd November 2021
No end in sight for shortages While the headline ISM manufacturing index fell only slightly to 60.8 in October, from 61.1, the survey details add to the evidence that shortages are constraining activity and pushing up prices. The ISM survey suggests that …
1st November 2021
The weakness of third-quarter GDP growth illustrates that, while demand remains strong, the economy has hit a wall of supply constraints. Ongoing product and labour shortages mean that growth will continue to disappoint next year, even if the Democrats …
29th October 2021
We estimate that non-farm payrolls rose by a slightly stronger 300,000 in October, with the easing Delta wave of infections triggering some rebound in hiring, but worsening labour shortages are a growing headwind. The 194,000 gain in payrolls in September …
28th October 2021
Growth hit by Delta, fading fiscal boost and shortages GDP growth slowed to only 2.0% annualised in the third quarter, as the Delta wave of infections, the waning fiscal stimulus and shortages, particularly of motor vehicles, triggered a marked slowdown …
Fed to announce $15bn per month asset purchase taper beginning in November Statement may reveal growing concern about higher inflation… …but we still expect weaker GDP growth to delay rate hikes until 2023 The Fed is set to announce at next week’s FOMC …
27th October 2021
Shortages weighing on investment too The weakness in headline durable goods orders last month was driven by another fall in transport orders, which mostly reflects worsening supply problems in the auto market. The strong increase in underlying orders and …
Employees are flexing their new-found bargaining power, with the unprecedented rate of job turnover, labelled “The “Great Resignation”, triggering a surge in wage growth for job switchers. Wage growth for job stayers is, for now, more muted. But, as the …
22nd October 2021