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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
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
