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With the final debate now done and dusted, America enters the final two weeks of the presidential election campaign with Joe Biden still leading in the polls and betting markets suggesting the Democrats will win control of the Senate as well as the White …
23rd October 2020
After rebounding by 30% annualised in the third quarter, we expect a more modest 4.5% gain in GDP in the fourth. But recent data suggest the risks to that forecast could lie to the upside, with investment rebounding rapidly and the September retail sales …
22nd October 2020
While the chances of a pre-election fiscal deal remain slim, markets appear to believe that a Democratic clean sweep of next month’s elections would result in a major post-election stimulus package. But with the Democrats unlikely to win a …
21st October 2020
The renewed upturn in coronavirus infections poses a downside risk to the economy and could also have a late bearing on the Presidential election in a little over two weeks’ time. The rise in new cases in recent weeks – to the highest level since …
16th October 2020
Manufacturing output stuck well below February level The 0.6% m/m decline in industrial production in September isn’t necessarily a sign that the broader economic recovery is in jeopardy when we know that retail sales rose strongly last month. But it is …
Consumer rebound still solid The unexpectedly strong 1.9% rise in retail sales last month suggests the economy was carrying more momentum into the fourth quarter than anticipated, defying fears that the expiry of enhanced unemployment benefits in the …
The upturn in coronavirus infections in the Midwest isn’t in itself a major concern, but a more widespread resurgence in cases over the winter would raise the risks of the economic recovery going into reverse. While Europe grapples with a second wave of …
14th October 2020
Core inflation held down by services weakness The more modest rise in core consumer prices in September, which came despite a further surge in used vehicle prices, suggests that the previous upward pressure on prices resulting from supply constraints may …
13th October 2020
Despite high unemployment, the latest NFIB survey shows small businesses are struggling to hire qualified workers, while inventory levels are exceedingly lean. In contrast to September’s softer CPI figures, the NFIB survey points to some further upward …
The rise in longer-term Treasury yields this week appears to reflect growing expectations of a Democrat clean sweep in November that could result in a larger fiscal stimulus down the road. Stock markets are benefiting from the speculation, even though any …
9th October 2020
The annual growth rate of M1 rose to a new record high in August but, with growth in the broader monetary aggregates now easing and bank loans continuing to decline, there is still little chance of that triggering a surge in price inflation. (See Chart …
7th October 2020
Exports should begin to catch up soon The trade deficit widened further in August, as imports continued to rebound at a faster pace than exports but, with domestic production continuing to ramp up and overseas demand also recovering, we doubt this marks …
6th October 2020
The news that President Donald Trump has tested positive for coronavirus has raised the odds of not only Joe Biden winning in November, but of the Democrats sweeping Congress too. Those braced for an October surprise did not have to wait long this …
2nd October 2020
Pace of recovery slowing The weaker than expected 661,000 rise in non-farm payrolls last month was in part due to a drop in government education employment but, with the pace of private payroll gains continuing to slow gradually, it is clear that the …
Manufacturing recovery has much further to run The modest decline in the ISM manufacturing index to 55.4 in September, from 56.0, suggests that manufacturing output will continue to grow at a relatively faster pace, as producers catch up with the …
1st October 2020
Overview – Following a 3.7% decline this year, we expect GDP growth to be a solid 4.5% in 2021, but the risks to that forecast on both sides are, frankly, enormous. The key downside risk is that recurring waves of coronavirus infections during the winter …
Concerns about the spread of the pandemic in Europe have continued to weigh on the stock market, but the battle over the Supreme Court could end up having a bigger bearing on the near-term outlook by further reducing the chances of a fiscal stimulus deal …
25th September 2020
Details much stronger than headline figures suggest The 0.4% m/m rise in headline durable goods orders in August was weaker than we had been expecting, but the underlying details nevertheless show that business equipment investment staged a V-shaped …
We estimate that non-farm payrolls rose by a more modest 800,000 in September, as the pace of private sector rehiring slows further and the recent burst of Census hiring goes into reverse . The near-1.4 million rise in non-farm payroll employment last …
24th September 2020
Fed underwhelms with new forward guidance After seeming to take a bold new step when it recently announced it would be adopting a flexible average inflation target, the Fed risked disappointing markets this week when it failed to back that up with much …
18th September 2020
The pace of economic recovery has slowed in the last month, but that is arguably still an impressive result given the surge in coronavirus cases over the summer, and the more recent expiry of the enhanced unemployment benefits. The retail sales figures, …
17th September 2020
The FOMC’s updated economic and rate projections show that officials expect to leave the fed funds rate at the current near-zero rate until at least 2023 and probably well beyond that. With the five-year Treasury yield already at less than 0.2%, however, …
16th September 2020
Sales growth inevitably slowing after rapid recovery The 0.6% m/m rise in retail sales in August was a bit weaker than we had expected, but isn’t a huge concern given that sales are now nearly 2% above their pre-pandemic level. (See Chart 1.) The expiry …
Recovery in manufacturing begins to wane The muted 0.4% m/m increase in industrial production in August wasn’t quite as bad as it looks, with Hurricane Laura causing a temporary 2.5% m/m drop off in mining production and the return to seasonal …
15th September 2020
With initial jobless claims still running at close to one million per week, it could be argued that, at 8.4% in August, the unemployment rate is not capturing the full extent of the slack in the labour market. But the survey evidence and the job turnover …
14th September 2020
The July Job Opening and Labour Turnover Survey (JOLTS) released this week suggests the labour market is in much better health than the downbeat jobless claims figures imply. The JOLTS report did confirm the sharp slowdown in the pace of payroll growth in …
11th September 2020
Dwindling inventory pushes vehicle prices sharply higher The outsized 0.4% m/m increase in core CPI in August was principally due to a 5.4% m/m surge in used motor vehicle prices which, unusually for this very early stage of the recovery, reflects …
New average inflation framework points to more policy support But Fed officials apparently in no rush to provide more accommodation Modest tweaks risk disappointing markets The Fed’s new average inflation framework implies that more stimulus measures are …
9th September 2020
In the wake of the Fed’s new policy strategy, a range of officials have used speeches in recent days to play down expectations that a major loosening in policy is imminent. While we still expect the Fed to strengthen its forward guidance and step up the …
4th September 2020
Recovery continues despite fading fiscal support The slighter softer 1,371,000 gain in non-farm payrolls in August was flattered by the hiring of 238,000 temporary workers for the 2020 Census and means that more than half of those who lost their jobs …
Exports and imports rebounding in unison Both exports and imports rebounded sharply in July, but the bigger gain in the latter means that the trade deficit widened to $63.5bn, from $53.5bn. Net external trade is on track to be a drag on third quarter GDP, …
3rd September 2020
The jobs report due on Friday should show employment continuing to rebound in August, but the ongoing weakness of demand in sectors like leisure and hospitality – which account for a higher share of employment than they do of broader economic activity – …
The recovery in manufacturing output has been relatively muted up to this point but, with goods consumption surging and, as a result, inventories now looking very lean for this stage in the cycle, we expect manufacturing output to climb back to its …
2nd September 2020
Production still struggling to keep pace with consumption The further rise in the ISM manufacturing index in August indicates that, while manufacturing production has continued to recover, it is still badly lagging the stronger turnaround in spending. The …
1st September 2020
The confirmation this week that the Fed is adopting “a flexible form of average inflation targeting” indicates that further monetary stimulus is coming soon. But with long-term interest rates already so low, that’s unlikely to have much bearing on the …
28th August 2020
Chair Jerome Powell announced this morning that the Fed will be adopting what he described as a “flexible form of average inflation targeting”, which we expect will trigger additional policy stimulus in the form of stronger forward guidance and possibly …
27th August 2020
We estimate that non-farm payrolls increased by a more modest one million in August and without the restarting of field operations for the 2020 Census, which probably added 250,000 jobs, employment growth would have slowed even more sharply. The 1,763,000 …
The annual growth rates of the main monetary aggregates remain unusually elevated, but the growth rate of bank loans has fallen back. (See Chart 1.) Furthermore, although those monetary aggregates are significantly higher than the level 12 months ago, …
Pandemic hit to core orders almost entirely reversed The sharp rise in durable goods orders last month was flattered by a surge in transport orders, but core orders are nevertheless almost back to the pre-pandemic level, suggesting that the recovery in …
26th August 2020
The Fed is very close to introducing changes to its policy framework that would explicitly allow for an overshoot of the inflation target to compensate for the undershoot over the past decade. Those changes to the long-run goals and strategy statement, …
25th August 2020
Housing on fire This week brought more evidence that the housing market has caught fire – with record low mortgage rates driving a V-shaped recovery despite high unemployment and an elevated mortgage delinquency rate. Housing starts rebounded to nearly …
21st August 2020
Although core CPI inflation remains muted at 1.6% in July, the surge in prices last month specifically could be the start of a more significant rebound, as the added costs and ongoing supply constraints stemming from the pandemic and physical distancing …
18th August 2020
A week later, it is still unclear whether President Donald Trump’s executive orders on unemployment benefits and payroll taxes will provide any meaningful fiscal stimulus during the second half of this year. With congressional talks deadlocked, the odds …
14th August 2020
Manufacturing boosted by recovery in autos sector Despite the 3.0%m/m rise in industrial production in July, it remained 8.4% below its pre-pandemic February level, illustrating that the industrial recovery is still lagging behind the more impressive …
Slowdown in consumption growth not as bad as it looks The details of the July retail sales report were rather better than the modest 1.2% headline gain let on and suggest that, while the recovery has lost pace, the slowdown has not been as sharp as we had …
A Joe Biden victory in November together with Democrats winning back control of the Senate could see a big increase in taxation and federal spending, together with a shakeup of healthcare, regulatory and trade policy. All of that could have a bearing on …
13th August 2020
Inflation rebounds as pandemic-related prices recover The 0.6% m/m surge in core consumer prices in July, which pushed the annual core CPI inflation rate back up to 1.6%, from 1.2%, should end any speculation that the pandemic-related slump in demand will …
12th August 2020
The incoming data this week were almost universally stronger than expected, with even July’s non-farm payroll figures coming in above consensus. With the number of new daily coronavirus infections beginning to abate, we expect further improvement in the …
7th August 2020
Recovery remains intact despite virus resurgence The 1,763,000 increase in non-farm payrolls in July confirms that, despite the resurgence in new coronavirus cases, the recovery remains firmly intact. With new infections now trending lower again and …
Rebound in trade lagging the rest of the economy The latest trade figures confirm that both exports and imports finally began to rebound in June, and we could see continued rapid gains over the coming months as trade catches up with the strong initial …
5th August 2020
