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We are confident in our new forecasts that GDP growth will be a disappointing 2.7% in 2022 and 2.0% in 2023, while core inflation remains elevated at close to 3%, but we are less confident in our predictions of how the Fed will react to that particular …
21st October 2021
Hurricane and shortages hamper production The 1.3% fall in industrial production in September partly reflects a temporary hit to mining and chemicals output from Hurricane Ida and a drop in cooling demand, as the weather returned to seasonal norms. That …
18th October 2021
Overview – The whiff of stagflation is getting stronger as shortages worsen, leading to surging prices and weaker real GDP growth. Shortages of goods and intermediate inputs will eventually ease, although not for at least six to 12 months. But the drop in …
This week brought more news that acute labour shortages and the resulting surge in wages are rapidly feeding through into the most cyclically sensitive components of the consumer price index. For the past couple of months, that impact has been masked by a …
15th October 2021
Shortages likely to keep spending growth subdued The 0.7% m/m rise in retail sales in September suggests goods spending held up a little better than we had anticipated, but real consumption growth still slowed sharply in the third quarter. There were some …
The August Job Openings and Labor Turnover survey released yesterday added to signs that labour shortages are still getting worse at a time when many of the temporary factors that were supposedly holding back labour supply are easing. We’re getting more …
13th October 2021
Cyclical price pressures rapidly building The more muted 0.2% m/m increase in core consumer prices in September is not as encouraging as it looks, since a temporary Delta-related drop back in the prices of high contact services masked a worrying …
Even the more modest 194,000 gain in non-farm payrolls in September is “decent” enough for the Fed to announce at next month’s meeting that it will begin tapering its asset purchases, especially now the threat of a government debt default has been pushed …
8th October 2021
Labour shortages are only getting worse The disappointing 194,000 gain in non-farm payrolls in September probably still counts as “decent” enough for the Fed to begin tapering its asset purchases next month. But alongside signs that activity growth is …
The entrenched positions of both sides suggest the deal to suspend the debt ceiling until December may only delay rather than avert a crisis. And in that scenario, we doubt that the Treasury minting a $1trn platinum coin would offer the easy way out. The …
7th October 2021
Supply chain woes will continue to weigh on trade We expect that the widening in the trade deficit to $73.3bn in August, from $70.3bn, will soon start to reverse, as exports catch up with imports. But there is a risk over the coming months that worsening …
5th October 2021
Prime Minister Harold Wilson’s quip that “a week is a long time in politics”, which he made during one of the UK’s seemingly never-ending crises in the 1960s, aptly describes the Democratic Party’s implosion. Slow motion train wreck This was the week when …
1st October 2021
Supply chain disruptions continue to weigh on production The small rise in the ISM manufacturing index to 61.1 in September, from 59.9, mostly reflects an artificial boost from lengthening supplier delivery times rather than any improvement in demand. …
We forecast a stronger 500,000 gain in non-farm payrolls in September. That should qualify as “decent” enough for the Fed to announce a tapering of its asset purchases at the November FOMC meeting – assuming Congress reaches a deal to raise or suspend the …
30th September 2021
Business equipment investment still growing rapidly The 1.8% m/m rise in durable goods orders in August was due to the ongoing rebound in commercial aircraft orders together with solid growth in underlying capital goods orders, with the latter reflecting …
27th September 2021
We still expect Congress to avoid a partial government shutdown at the start of next month and to raise the debt ceiling before a full-blown crisis develops in late October. But the negotiations over the latter will go down to the wire, which always …
This week the focus was on the Fed, which appears intent on announcing a QE taper at the next FOMC meeting in early November. Next week the focus will shift to fiscal policy, with the Democrat’s plans to boost infrastructure and social welfare spending …
24th September 2021
Fed officials gave a heavy hint today that the QE taper will be formally announced in November and, presumably in response to concerns that the surge in inflation won't be as transitory as they originally hoped, there were notable increases in the median …
22nd September 2021
The latest data provide mixed signals on the impact that the Delta variant is having on the economy. The high frequency indicators for high contact services suggest that activity levelled out in August and weakened a little in early September (See Chart …
21st September 2021
While the data released this week showed retail spending picking up in August as price gains moderated, the figures are still consistent with a sharp slowdown in consumption growth in the third quarter while underlying inflationary pressures continue to …
17th September 2021
The spread of the Delta variant domestically has triggered a temporary reversal in the reopening inflation in high contact services, but its spread across other parts of the world will intensify supply shortages and drive goods prices higher. At the same …
16th September 2021
Delta playing havoc with the spending data Even though the 0.7% rise in headline retail sales in August was much better than expected, the details were far less positive, with big downward revisions to previous months, while the rise in online and grocery …
Fed may signal – but not formally announce – taper will begin later this year Weaker incoming data will help keep rates on hold until 2023 New 2024 forecasts will provide important clues to Fed’s reaction function We think the sharp slowdown in employment …
15th September 2021
Ida and Delta likely to cause further slowdown in September The 0.4% m/m rise in industrial production in August lifted it back above its pre-pandemic peak, but was nevertheless weaker than we had expected and suggests that the industrial recovery is …
Delta puts reopening inflation into reverse The more modest 0.1% m/m increase in core consumer prices in August will be heralded as a sign that the recent surge in inflation was transitory after all but, although the spread of the Delta variant has put …
14th September 2021
With authorities having shown no appetite to reimpose restrictions on activity and new virus cases now levelling off, the Delta variant is still unlikely to have as big an impact on the economy as previous waves. That said, it adds to a range of other …
13th September 2021
Tapering is off the table this month and whether the Fed will make an announcement before year-end depends on the strength of employment, which is being held back by increasingly acute labour shortages and the spread of the Delta variant. Fed hawks back …
10th September 2021
In his Jackson Hole speech, Fed Chair Jerome Powell highlighted alternative measures of inflation, including the Dallas Fed trimmed-mean PCE and inflation ex-durable goods, which he claimed were consistent with inflation falling back close to the Fed’s 2% …
9th September 2021
The continued surge in job openings and elevated quits rate in July suggest that labour shortages are still intensifying, which will put further upward pressure on wages. (See Chart 1.) There is little evidence that the return to in-person schooling or …
8th September 2021
With employment increasing by less than 250,000 last month and other incoming data disappointing, the recovery appears to be losing momentum even faster than our already-below consensus forecasts imply. The slowdown initially reflected the fading of the …
3rd September 2021
Delta variant weighing on economy The well-below consensus 235,000 gain in non-farm payrolls in August suggests that the Delta variant is beginning to weigh on the economy, with leisure & hospitality employment unchanged on the month. Even allowing for …
Stronger exports won’t prevent slowdown in GDP growth The narrowing in the trade deficit to $70.1bn in July, from a revised $73.2bn, suggests that the drag on GDP growth from net trade in recent quarters will be partly reversed in the third. The narrowing …
2nd September 2021
The latest data show that growth in the main monetary aggregates is slowing even before the Fed starts tapering its monthly asset purchases, although it remains strong by historic standards. (See Chart 1.) With the Fed likely to begin reducing its monthly …
1st September 2021
Supply problems & labour shortages still the big constraint The details of the small rise in the headline ISM manufacturing index in August to 59.9, from 59.5, suggest demand remains strong and that, while some of the recent price pressures have faded, …
Delta wave spreads The Delta-variant linked surge in coronavirus cases continues and has now spread well beyond just one or two southern states. (See Chart 1.) Moreover, even in those southern states, particularly Florida, new case numbers remain close to …
27th August 2021
We expect a 750,000 gain in payrolls in August which, although slightly weaker than the gains seen in June and July, would be enough to push the unemployment rate down to 5.1% and would probably count as “substantial further progress” in the eyes of many …
26th August 2021
With the Delta-linked resurgence in coronavirus infections adding to the downside risks to economic growth and officials still split on exactly what qualifies as “substantial further progress” toward meeting the full employment goal, we don’t expect Chair …
Equipment investment will probably remain a bright spot in Q3 The 0.1% m/m fall in durable goods orders in July was entirely due to a plunge in the volatile commercial aircraft component. The underlying details suggest that growth in business equipment …
25th August 2021
The bipartisan infrastructure deal, which could be passed by end-September, would provide no meaningful boost to the economy over the next couple of years. The $3.5trn spending package that Democrats aim to pass via reconciliation later this year could …
The Fed now looks likely to begin tapering its asset purchases later this year, but the precise timing could depend on the extent of any economic drag from the continued rapid spread of the Delta coronavirus variant. The minutes from the July FOMC meeting …
20th August 2021
The 1.1% m/m fall in retail sales last month illustrates the worsening drag from the sharp slowdown in real income growth, as earlier fiscal support fades and surging prices erode purchasing power. This suggests real consumption growth could be even …
18th August 2021
Economy set for sharp slowdown in third quarter The 1.1% m/m fall in retail sales in July suggests that the hit to real incomes from surging prices, along with growing concerns about the Delta coronavirus variant, is starting to take its toll. The upshot …
17th August 2021
While the July inflation data this week added to signs that we’re past the peak of “transitory” gains in prices for used autos and reopening services, the pick-up in some of the more cyclically driven components showed underlying inflationary pressures …
13th August 2021
Core inflation unlikely to fall back as quickly as Fed hopes The more modest 0.3% m/m rise in core consumer prices in July indicates that the transitory burst of rising prices linked to reopening is fading and that, after falling to 4.3% from 4.5% in …
11th August 2021
The ongoing surge in both job openings and quits in June suggests that labour shortages are still getting worse. (See Chart 1.) While the acceleration in payroll gains in recent months suggests that is not proving as long-lasting a drag on hiring as we …
9th August 2021
While many Republicans will balk at the cost of the bipartisan infrastructure package, which the CBO said would add $256bn (1.1% of GDP) to the deficit over the next decade, that is unlikely to derail the entire package, which faces a crucial Senate vote …
6th August 2021
Payrolls acceleration could bring forward taper decision The stronger 943,000 rise in non-farm payrolls in July and upward revision to previous months’ gains indicates that employment growth has shifted into a higher gear and that the drag on hiring from …
Whether President Joe Biden chooses to reappoint Jerome Powell or to nominate Lael Brainard to be the next Fed Chair, it is unlikely in itself to have much impact on the near-term outlook for monetary policy. With up to three other vacancies for Biden to …
5th August 2021
Although the headline data show bank loans stagnant (see Chart 1), that is mostly due to the forgiveness of Paycheck Protection Program loans and mortgage securitisations, with the broader evidence pointing to an acceleration in credit growth. Narrow …
Net trade will remain a drag on GDP growth in the third quarter The widening in the trade deficit to $75.7bn in June, from $71.0bn in May, is unlikely to be sustained now that consumer goods demand appears to have peaked and surveys show demand for US …