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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
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 …
Business equipment investment growth slowing, not collapsing The surprisingly robust 0.7% rise in durable goods orders last month was much better than some of the downbeat survey evidence had suggested and is consistent with business equipment investment …
27th June 2022
Chair Jerome Powell signalled this week that the Fed will press ahead with its planned series of aggressive interest rate hikes, even as evidence mounts that economic growth will be weak in the second half of the year. Powell reiterates Fed’s hard-line …
24th June 2022
The surge in interest rates, plunge in the stock market and weakness of consumer confidence have fuelled fears of an impending recession, but there is still little sign of that in the incoming economic data. The coincident indicators used by the NBER to …
23rd June 2022
50bp or 75bp in July Fed Chair Jerome Powell suggested that officials were split on whether to continue with another 75bp rate hike at the next meeting in late July, or to revert to 50bp increases. We have another super-sized increase pencilled in, mainly …
17th June 2022
Further evidence of growth slowdown The muted 0.2% m/m rise in industrial production in May adds to the evidence that the economy is slowing. But there is still little in activity data to suggest a recession is on the horizon, or to dissuade the Fed from …
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
Surging prices starting to hit real consumption The 0.3% m/m fall in retail sales in May and downward revisions to previous months’ gains suggest that surging prices might finally be taking their toll on real consumption. But with the latter still on …
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
Inventories still look lean Target’s admission this week, that its profits would take a hit as it tried to reduce unwanted inventory, led to claims that there was an economy-wide inventory glut. Some took that to mean higher prices and interest rates were …
10th June 2022
Raging inflation could open door to a 75bp hike The surprise increase in headline inflation to a 40-year high of 8.6% in May, from 8.3%, together with another strong rise in core prices raises the odds that the Fed will need to extend its series of 50bp …
Fed to raise rates to 1.25%-1.50% and signal another 50bp hike in July Stubborn inflation may make September meeting a close call between 25bp or 50bp We expect fed funds target range to peak at 3.25%-3.50% in 2023 H1 The Fed is set to hike interest rates …
8th June 2022
Net trade a big boost to second quarter GDP The bigger than expected drop back in the trade deficit in April suggests that net trade will be a large boost to second-quarter GDP growth, with the risks to our forecast for growth of 4.8% annualised now …
7th June 2022
The 390,000 gain in payrolls employment last month demonstrates that the real economy is holding up well, although the further rise in energy prices will put households under even more pressure. Gas prices headed to a record $5 gallon With no end in sight …
3rd June 2022
Payroll gains remain strong, as wage growth eases The better than anticipated 390,000 gain in non-farm payrolls adds to the signs that the economy is still strong while, amid a rebound in the labour force, wage growth is beginning to moderate. With wage …
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
Easing supply shortages lend support to activity The rise in the ISM manufacturing index to 56.1 in May, from 55.4, was better than we had anticipated and suggests a continued easing of supply shortages is supporting activity. But we expect a slowdown in …
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
Strong consumption growth fuelled by savings The 0.7% jump in real consumption in April, together with the upward revision to March’s gain leaves consumption on track for a 5% annualised gain in the second quarter. Thanks to a rapid rebound in exports, …
27th May 2022
We expect that non-farm payroll growth slowed in May, albeit to a still strong 300,000 . Payrolls rose by 428,000 in April, exactly in line with the March pace, representing a slowdown from the 550,000 average monthly gain over the preceding six months. …
26th 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 …
Business equipment investment growth moderating The modest 0.4% m/m rise in durable goods orders in April suggests that rate-sensitive business equipment investment growth is beginning to slow, with underlying capital goods shipments consistent with a …
With China’s economy hampered by its zero-covid lockdowns, and Europe’s economy suffering because of the massive surge in imported energy prices caused by the war in Ukraine, the American consumer has once-again emerged as the world’s spender of last …
20th May 2022
The strength of the hard activity data for April refutes the recent message from financial markets that the economy is at risk of imminent recession. The solid gain in control group retail sales, together with upward revisions to past months leaves the …
18th May 2022
Economy firing on all cylinders The 0.8% rise in manufacturing output last month underlines that it is not just consumer spending powering the economy forward. While the survey evidence suggests global manufacturing demand is cooling, the gradual easing …
17th May 2022
Never bet against the US consumer Never bet against the US consumer has always been a good adage to bear in mind throughout my 20-plus years in the markets. Despite the surge in prices weighing on their purchasing power, the US consumer now appears to be …
Fed officials will have been eyeing the flood of red on their screens this week with a growing sense of foreboding. Admittedly, for GDP growth to slow and inflation to fall, they want financial conditions to tighten, which includes lower equity prices, a …
13th May 2022
Inflation still set to fall over the coming months The falls in headline and core inflation in April marks the beginning of a sustained decline, as base effects improve and supply shortages ease, although the 0.6% monthly jump in core prices indicates …
11th May 2022
We expect the Fed to reduce its asset holdings by more than $3trn over the next couple of years, enough to bring the balance sheet back in line with its pre-pandemic level as a share of GDP. That shouldn’t have a major impact on the economy but, with …
10th May 2022
Fed moving expeditiously The Fed’s policy statement this week warned that the FOMC is “highly attentive to inflation risks” and, as a result, in his post-meeting press conference Chair Jerome Powell acknowledged that “there is a broad sense on the [FOMC] …
6th May 2022
Labour market conditions remain robust The solid 428,000 gain in non-farm payroll employment in April illustrates that the Fed was right to ignore the misleading contraction in first-quarter GDP, with the economy still on a firm footing. Admittedly, we …
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
