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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 …
Supply problems no longer getting any worse The further small decline in the ISM manufacturing index in July probably has more to do with the continued drag from supply constraints than waning demand. The details did at least suggest that supplier …
2nd August 2021
The slightly disappointing second-quarter GDP data released this week and another dovish press conference from Chair Jerome Powell strengthen our belief that the Fed is unlikely to begin tapering its asset purchases until early next year. The 6.5% …
30th July 2021
With labour supply continuing to lag the recovery in demand, we estimate that growth in non-farm payrolls slowed to 650,000 in July. The 850,000 gain in payrolls in June was the biggest monthly increase since last summer. That suggested the labour …
29th July 2021
Economy surpasses pre-pandemic size, but recovery slowing The relatively disappointing 6.5% annualised gain in second-quarter GDP, which was well below the consensus at 8.5%, included unexpected declines in government spending and residential investment, …
The Fed took a small step toward the eventual tapering of its asset purchases by altering the language in the statement released today, but officials appear to be in no rush. We still expect an announcement in August or September, with the taper itself …
28th July 2021
Equipment investment growth set to remain above trend The June durable goods data were a little weaker than we had expected, but the further rise in underlying orders suggests that business equipment investment growth is slowing only gradually. The 0.8% …
27th July 2021
Productivity growth surged during the pandemic last year, but that was principally due to the disproportionate job losses in low-productivity sectors like leisure & hospitality, which raised the economy-wide average level. The pandemic also accelerated …
Fiscal policy still plagued by uncertainty Although the $600bn bipartisan infrastructure deal fell at the first hurdle in the Senate this week, centrist Republican Senators indicated that they would be willing to provide the support to overcome the threat …
23rd July 2021
Next week’s meeting unlikely to bring new guidance on asset purchases Tapering still on track to begin in early 2022; September announcement possible Rates to remain on hold until 2023 A few regional Fed Presidents are pushing for the Fed to begin …
21st July 2021
Although 60% of American adults are now fully vaccinated, the uptick in coronavirus infections linked to the Delta variant has been accompanied by a slight rebound in fears over the spread of the virus. (See Chart 1.) While most states appear unlikely to …
20th July 2021
The Democrats’ $3.5trn budget proposal is only the first step in what could be a protracted negotiation to a final bill, which will be roughly fiscally neutral. Meanwhile, another dovish showing from Fed Chair Jerome Powell this week hasn’t prevented …
16th July 2021
Surge in prices masks weakness in real sales The 0.6% m/m gain in retail sales in June was a little stronger than we were expecting, but upward revisions to the decline in May take the gloss off that somewhat and, besides, with consumer prices rising by …
Shortages still constraining output The modest 0.4% m/m increase in industrial production in June was due to a weather-related spike in utilities demand and a recovery in mining output, with manufacturing output dragged down by another big …
15th July 2021
Overview – Supply shortages will ease only gradually over the next couple of years, putting sustained upward pressure on core inflation and constraining real activity. We expect core inflation to remain above 3% for the remainder of this year, with only a …
13th July 2021
Inflation scare far from over The 0.9% m/m surge in both headline and core consumer prices in June was much stronger than we expected and illustrates that temporary supply bottlenecks stemming from the pandemic are still putting significant upward …
The drop back in Treasury yields has accelerated over the past few weeks, as persistent supply shortages and the spread of new coronavirus variants have raised doubts about the pace of real economic growth in the second half of this year and beyond. We …
9th July 2021
In contrast to the stronger payrolls figures released last week, the latest survey data suggest that labour shortages remain acute. That supports our view that the acceleration in employment growth in June probably wasn’t a sign of things to come and …
7th July 2021
We aren’t convinced that it will mark the start of a sustained acceleration, but the stronger gain in June payrolls will embolden those Fed officials calling for an earlier end to the Fed’s asset purchases. The 850,000 rise in non-farm payrolls in June …
2nd July 2021
Payroll growth accelerates, but drag from shortages could persist The stronger 850,000 rise in non-farm payrolls in June may be a sign that some of the temporary labour shortages holding back the employment recovery are starting to ease. But with the …
Shortages still pushing prices higher The headline ISM manufacturing index was virtually unchanged at a high level in June, but the far bigger story is the further rise in the prices paid index to 92.1 from 88.0, its highest level since the 1970s. That is …
1st July 2021
The widespread labour shortages evident in the survey data and job opening & quit rates are only partly due to transitory factors, including enhanced unemployment benefits, childcare constraints, and virus fears. Limited international migration, the wave …
29th June 2021
Fed officials all over the map Fed Chair Jerome Powell stuck to the script in his congressional appearance earlier this week, arguing it was “very, very, unlikely” that the US would experience a return to the high inflation of the 1970s. He acknowledged …
25th June 2021
We estimate that non-farm payrolls increased by about 500,000 again in June, as labour supply shortages continue to roil the market. The 559,000 gain in non-farm payrolls in May would normally be impressive but, with employment still 7.6 million below its …
24th June 2021
Business equipment investment still expanding rapidly The 2.3% m/m rise in durable goods orders last month was driven by another big increase in commercial aircraft orders reflecting the recovery in air travel, with underlying orders weaker than expected …
The upward revisions to the “dot plot” at this week’s FOMC meeting were hard to square with Fed officials’ continued belief that higher inflation will prove mostly transitory. Nevertheless, we also now expect two 25bp rate hikes in 2023, one more than we …
18th June 2021
The Fed continued to stick to its view that the surge in inflation "largely" reflects "transitory factors", but officials revised their inflation projections up significantly for this year and the median projection now shows two 25bp interest rate hikes …
16th June 2021
The further jump in CPI inflation in May was again driven by a handful of categories most affected by the lifting of pandemic restrictions. But there were also clear signs that inflationary pressures are becoming more widespread, with rent of shelter …
Manufacturing recovery remains unspectacular The 0.8% m/m rise in industrial production in May, driven by a 0.9% gain in manufacturing output, suggests that some of the shortages holding back production in recent months could have eased. But manufacturing …
15th June 2021
Fading stimulus boost partly offset by reopening spending on services The 1.3% decline in retail sales in May is arguably a lot better than it looks because there were big upward revisions to the April data and spending on food and drink services posted …
The continued surge in prices last month was again mostly concentrated in sectors reopening or facing intense supply constraints, which allows the Fed to stick with its “largely transitory” story for now. But with signs of cyclical price pressures …
11th June 2021
Surging inflation starting to look a little less transitory The further jump in core CPI inflation to a 28-year high of 3.8% in May, from 3.0%, was again driven by the same handful of categories most directly affect by the lifting of virus restrictions. …
10th June 2021
Fed to begin discussion of how asset purchases might eventually be tapered But disappointing payrolls suggest “substantial further progress” still some way off Surging inflation means Fed’s projections need a re-think Fed officials may finally begin …
9th June 2021
