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Jump in imports likely to be partly reversed The surge in the trade deficit to a record high of $109.8bn in March, from $89.8bn, was driven by a huge rise in imports as port congestion cleared. We suspect imports will fall back over the coming months, …
4th May 2022
While the job openings and quits rates both edged up again in March, the bigger picture remains that labour market conditions have been stable over the past nine months or so, with few signs that shortages have begun to ease markedly, with the notable …
3rd May 2022
Global manufacturing slowdown will spread to US soon The decline in the ISM manufacturing index to a 20-month low of 55.4 in April, from 57.1, is mostly due to weakening demand amid a broader slowdown in global manufacturing, rather than a renewed supply …
2nd May 2022
We doubt that the unexpected 1.4% annualised decline in first-quarter GDP will stop the Fed from hiking its policy rate by a bigger 50bp next week or from launching quantitative tightening. The Fed will stress the ongoing strength of employment growth, …
29th April 2022
We expect that employment growth continued to trend lower in April, with non-farm payrolls rising by 375,000. Alongside rebounding participation, that easing in labour demand looks set to drive wage growth lower. Payroll gains have averaged a robust …
28th April 2022
Stalling real economy won’t stop the Fed The unexpectedly severe 1.4% annualised decline in first-quarter GDP probably won't stop the Fed from hiking interest rates by 50bp next week, since officials will chalk it up to the temporary impact of Omicron and …
50bp hike likely to be first in series of three over next few policy meetings QT to be launched next week – caps will be ramped up to $95bn per month Economy should bend rather than break under higher rates We expect the Fed to hike interest rates by 50bp …
27th April 2022
Equipment investment resilient The solid increase in durable goods orders in March reflects both easing supply shortages as well as strong underlying investment demand. Business equipment investment is usually one of the more rate-sensitive parts of the …
26th April 2022
With Fed officials seemingly competing to try and sound more hawkish than their peers, a 50bp rate hike next month appears nailed on – even though this week also brought further tentative signs that inflation is set to ease soon. Fed readying …
22nd April 2022
While we are confident that inflation will fall back sharply in the second half of this year, that will not stop the Fed delivering a series of 50bp rate hikes at its upcoming meetings. Although gasoline prices have stabilised this month, though the surge …
20th April 2022
Output surging as bottlenecks clear The strong 0.9% rise in industrial production in March reflected a sharp rebound in autos production as well as another big increase in mining output. The US will not be immune to the global slowdown in manufacturing …
15th April 2022
8.5% inflation marks the peak The news that core prices rose by a more modest 0.3% in March, even as higher energy prices drove headline inflation to a 40-year high of 8.5%, explains why investors pared bets this week on how far interest rates would rise. …
14th April 2022
Surge in energy prices hits real consumption The 0.5% m/m rise in retail sales in March was flattered by a price-related surge in the nominal value of gasoline sales, with the details suggesting that consumption fell in real terms. The 18% m/m surge in …
Overview – We expect the economy to bend rather than break under the pressure of a rapid monetary tightening by the Fed. We anticipate that real economic growth will remain consistently below its 2% potential pace over the next two-and-a-half years, but …
12th April 2022
Inflation set to fall sharply over rest of the year The surge in energy prices helped drive headline CPI inflation up to a 40-year high of 8.5% in March but, with base effects set to become much more favourable and signs that monthly gains in core prices …
The age of turbulence all over again As it was with Alan Greenspan, we suspect that, although he still receives favourable reviews now, history will judge Jerome Powell’s tenure as Fed Chair far more harshly. With the benefit of less than 24 months of …
8th April 2022
GDP growth hit by falling exports Although the nominal trade deficit was unchanged at $89.2bn in February specifically, the recent weakness of real exports suggests that net trade was a substantial drag on first-quarter GDP growth. The stability of the …
5th April 2022
Yield curve inversion adds to recession fears The inversion of the 10y-2y Treasury yield spread this week led to predictable speculation that the Fed’s interest rate hikes would quickly push the US economy into recession. Admittedly, high inflation has …
1st April 2022
Global manufacturing slowdown will spread to US soon The unexpected decline in the ISM manufacturing index to 57.1 in March, from 58.6, still leaves it at a healthy level and, with other US manufacturing surveys strengthening last month. Nevertheless, the …
America is going back to work The 431,000 rise in non-farm payrolls is another sign that the real economy has plenty of momentum, though with those gains now being helped by a stronger rebound in the labour force, there are signs that wage growth may have …
Less than a week after the Fed raised interest rates by 25bp at its policy meeting and issued projections showing that it intended to hike rates at each of the remaining six meetings this year, Chair Jerome Powell adopted an even more hawkish tone in a …
25th March 2022
We estimate that non-farm payrolls increased by 450,000 in March, marking the beginning of a gradual slowdown. The report should also provide further evidence that wage pressures are starting to ease. Payroll employment growth has proved remarkably …
24th March 2022
Equipment investment still set for stronger Q1 The February durable goods orders data were weaker than we had expected, even controlling for the slump in commercial aircraft orders, but the details are still consistent with first-quarter business …
While the war in Ukraine and sanctions on Russian oil mean energy prices will remain elevated and push headline inflation above 8% in March, it will still fall sharply later this year. (See Chart 1.) Energy inflation and inflation in categories that saw …
23rd March 2022
The Fed delivered on expectations of a 25bp rate hike this week but went further than we anticipated in pencilling in a further six 25bp hikes this year and four next. With their forecasts for core inflation in future years close to our own, we have …
18th March 2022
Output jumps, but supply shortages persist The jump in manufacturing output last month in part reflects the easing of widespread absenteeism as covid cases fell back sharply . The 1.2% rebound in manufacturing output in February was in line with the jump …
17th March 2022
The Fed began its tightening cycle with a 25bp hike today and, despite the uncertainty caused by the war in Ukraine and China's efforts to contain the spread of the Omicron variant, officials look set to hike rates by an additional 25bp at each of the …
16th March 2022
February weakness offset by upward revisions to January The muted 0.3% m/m rise in retail sales in February was largely offset by the upward revision to January’s gain which, overall, suggests that real consumption growth remains solid. With the sharp …
The earlier spike in crude oil prices, slump in stock markets and the flattening of the Treasury yield curve have prompted fears that US economy is headed for a 1970s-style stagflation, but our recession tracking models suggest the risk of a downturn …
Fed to hike by 25bp and “proceed cautiously” We expect the Fed to hike interest rates by 25bp at next week’s FOMC meeting and, despite the war in Ukraine, to unveil new projections showing at least five interest rate hikes this year in total. We also …
11th March 2022
Inflation to peak at more than 8% this month Rising energy prices pushed the CPI inflation rate up to a 40-year high of 7.9% in February and, given the spike in crude oil and gasoline prices since Russia's invasion of Ukraine, it will climb well above 8% …
10th March 2022
Both job openings and quits have fallen back slightly over the past several months, which suggests that wage growth and underlying inflationary pressures should soon stabilise . (See Chart 1.) The Job Openings and Labour Turnover survey (JOLTs) for …
9th March 2022
We expect five 25bp rate hikes this year and another four next year War in Ukraine doesn’t alter policy outlook Fed likely to downplay inflationary impact of energy price surge We expect the Fed to hike interest rates by 25bp at next week’s FOMC meeting …
The surge in gasoline prices in recent days will only add to the drag on households purchasing power from fading stimulus and higher inflation over recent months. But with consumers able to cushion the blow in the near term by reducing their saving, we …
8th March 2022
Net trade a drag on GDP growth The increase in the trade deficit to a record $89.7bn in January, from $82.0bn, means that net trade is on track to subtract close to 2%-pts from annualised first-quarter GDP growth, which we expect to slow to only 1.5% …
Energy prices soaring Based on shifts in wholesale prices, the surge in the WTI crude oil price to more than $110 per barrel this week will drive the national retail gasoline price up to almost $4.50 a gallon within the next couple of weeks. (See Chart …
4th March 2022
Strong payrolls keep planned Fed tightening on track The stronger than expected 678,000 gain in non-farm payrolls in February and upward revisions to previous months gains is another sign that the real economy has considerable momentum, with the Omicron …
Chair (pro tempore) Jerome Powell indicated in his congressional testimony today that, with Russia's attacks on Ukraine roiling markets and creating additional uncertainty, he was inclined to support a 25bp hike later this month and that the Fed should …
2nd March 2022
Demand strong, supply constraints easing gradually The rise in the ISM manufacturing index to 58.6 in February, from 57.6, is another sign that demand remains strong, with the small rise in supplier delivery times and modest decline in the prices paid …
1st March 2022
The war in Ukraine will prevent US inflation from falling as much as it otherwise would have in the coming months, but it will have little impact on the real economy, so we doubt it will stop the Fed. Even after the recent escalation of Western sanctions, …
Goods supply shortages are now easing. Like the recent stabilisation in labour market slack, that improvement has, at least partly, been driven by a slowdown in demand, so it isn’t a sign that economic growth is about to accelerate. But it does support …
In his speech late last night, Christopher Waller became the first Fed Governor to throw his weight behind St Louis Fed President James Bullard’s call for 100bp of rate hikes by the middle of the year. Nevertheless, we expect Chair Jerome Powell to push …
25th February 2022
Real economy in good health The real economy appears to be in good health, suggesting that the Fed will push on with planned rate hikes starting in March, although the Ukraine conflict makes a 50bp hike less likely. The 1.5% m/m gain in real consumption …
Reflecting the stronger trend in employment growth apparent in the revised payroll data and the collapse in Omicron cases in February, we expect non-farm payrolls to rise by 600,000 this month. The January employment report included significant upward …
24th February 2022
The strong finances of state & local governments suggest that they will continue to increase spending at a rapid pace this year. But that won’t come close to matching the huge economic boost from the $2.5trn federal fiscal stimulus last year, which has …
23rd February 2022
In a week when we learned that producer price inflation, retail sales and industrial production all came in hotter than expected in January, interest rate expectations nevertheless declined, as markets digested a relatively dovish set of minutes from the …
18th February 2022
The further rise in CPI inflation to 7.5% in January and hawkish comments from Fed officials have seen markets rush to price in a series of aggressive interest rate hikes this year. But recent weeks have also brought tentative signs that better news on …
17th February 2022
Further evidence of limited Omicron impact The 1.4% m/m rebound in industrial production in January appears to confirm that the Omicron wave has had surprisingly little impact on the economy. That said, the weakening global backdrop suggests manufacturing …
16th February 2022
Rebound after December seasonal problems The strong 3.8% rebound in retail sales in January is not quite as good as it looks, since it is mainly a recovery from the revised 2.5% drop in December. But with the modest decline in food and drink services …
The news this week that CPI inflation climbed to a new high of 7.5% in January prompted another surge in interest rate expectations. Fed funds futures now puts the odds of a 50bp hike in March at more than 50/50 and are pricing in 160bp of tightening for …
11th February 2022
