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The news this week that core consumer prices fell by 0.4% m/m in April has added to the speculation that the pandemic could tip the US into a Japan-style deflation. At 1.4% last month, the annual core CPI inflation rate is still well above the lows …
15th May 2020
April to mark the low point, but recovery may only be gradual The 11.2% m/m fall in industrial production in April was bigger than at any point in the index’s 100-year history, including the Great Depression, the end of World War 2 and the Global …
Virus hit to consumption even worse than we thought The 16.4% m/m plunge in retail sales last month leaves sales 21% lower than in February , a slightly bigger hit to consumption from the lockdowns than we had anticipated. Even with many states now easing …
The early evidence suggests that, even in states which have begun to ease lockdown measures, demand is initially recovering only gradually. It also points to the recovery completely bypassing some sectors – suggesting that GDP will stage only a partial …
14th May 2020
Although employment should partially rebound once lockdown measures are lifted, the pandemic is still likely to result in a sustained increase in labour market slack, which will push wage growth sharply lower. Average hourly earnings growth surged to a …
13th May 2020
Unprecedented price falls in lockdown-affected sectors The 0.8% m/m fall in consumer prices last month reflects the sharp drop in energy prices together with an unprecedented 0.4% m/m fall in core CPI. But the latter was largely due to very big declines …
12th May 2020
The usual suspects are already claiming that the surge in the growth rates of the monetary aggregates will trigger a marked rise in inflation. (See Chart 1.) But the pick-up, which is a direct result of the Fed’s asset purchases, is not going to put …
The Treasury’s plan to issue more long-term debt is sensible enough when long rates are at ultra-low levels, but a more marked shift in debt issuance policy could signal that policymakers are hoping to engineer a rise in inflation to help bring the …
11th May 2020
The Fed has developed a habit of caving in the face of market pressure in recent years, but we still think the chances of it pushing the fed funds rate into negative territory are low. Fed officials have been united and consistent in arguing that the …
The confirmation that non-farm payroll employment fell by 20.5 million in April, with job losses in every sector underlines just how deep and widespread the economic shock over the past six weeks has been. The official unemployment rate rose to 14.7%, but …
8th May 2020
Unprecedented job loss illustrates extent of human tragedy The loss of 20.5 million jobs in April was largely as expected based on the tsunami of jobless claims and, although the unemployment rate only climbed to 14.7%, slightly below expectations, that …
The surprising resilience of the Markit PMIs and ISM indices this month is more a function of the survey design than an indication that the economic hit is not as bad as the hard data suggest. The surveys are likely to do a poor job at capturing the shape …
7th May 2020
The coronavirus-induced collapse in economic activity means that state & local government tax revenues will plunge over the coming months. With balanced budget rules in most states meaning that lower revenues must be offset by lower spending, budget cuts …
6th May 2020
There is a good chance that the renewal of antagonism between the US and China, this time over the origin of the coronavirus rather than trade, will persist – and might even escalate – in the run up to November’s presidential election. We suspect that …
Exports and imports set for even bigger falls The widening in the trade deficit to $44.4bn in March, from $39.8bn, came as a further fall in imports was outpaced by a plunge in exports, with both driven by a collapse in international travel and tourism. …
5th May 2020
Surveys not capturing full extent of the downturn The drop in the ISM manufacturing index to 41.5 in April, from 49.1, was more modest than we and the consensus expected and leaves it at a level consistent with GDP falling at a 5% annualised pace , …
1st May 2020
It’s increasingly clear that the economy took an unprecedented hit in March and April. Barring a renewed national upsurge in coronavirus cases, however, the gradual lifting of containment measures suggests that activity will now start to recover. The end …
We estimate that non-farm payroll employment fell by between 20 and 25 million in April, with the unemployment rate surging to between 15% and 20%. That would be an unprecedented loss of jobs in a single month, equating to more than double the total …
30th April 2020
Since the Fed had already gone all-in on its monetary policy stimulus, it was little surprise that there no major policy announcements in today’s statement. Over the next few months the Fed will continue to expand its balance sheet toward $10trn, albeit …
29th April 2020
Economy hit by unprecedented slump in services consumption Since the pandemic-related lockdowns only really began in earnest in the final two weeks of the quarter, the 4.8% annualised decline in GDP over the first quarter as-a-whole illustrates that …
With Congress ramping up its fiscal stimulus rescue package, federal debt will rise above 100% of GDP this year, not far off the record high of 108% of GDP in the aftermath of WWII . That is not a concern for the next year or two, but it does raise the …
28th April 2020
The plunge in activity in the second half of March, as coronavirus restrictions proliferated, means that the first-quarter GDP data – due next week – will show output contracting for the first time in six years and worse is to come in the second quarter. …
24th April 2020
Slump reflects cancellation of aircraft orders The 14.4% m/m slump in durable goods orders in March was principally due to a massive 295.7% m/m decline in commercial aircraft orders, with core orders down by only 0.2%m/m. The upshot is that business …
The unemployment rate will surge to more than 15% in April but, unlike in a normal economic cycle, the high proportion of people on a temporary layoff leaves us hopeful that rate will come down relatively quickly, falling back below 7% by year-end. The …
23rd April 2020
Fed funds target range will be stuck at zero for foreseeable future Easing financial market stress suggests Treasury purchases will continue to slow But new lending facilities could eventually push balance sheet above $10trn With the Fed having already …
22nd April 2020
President Trump’s tweet announcing a temporary ban on immigration is most likely just a short-term tactic to fire up his base. But it is hard not to see this as the beginning of an even more nativist post-pandemic policy agenda that the Trump …
21st April 2020
The scale of the Fed’s purchases of Treasury securities in the first few weeks of the pandemic, in addition to the sheer size of the broader expansion in its balance sheet, arguably suggests that the Fed is not just monetising the deficit, but has …
20th April 2020
The massive declines in retail sales and industrial production last month make it clear that the slump in activity, which only began in mid-March, was unprecedented in terms of both its speed and its severity. We now calculate that first-quarter GDP fell …
17th April 2020
The early hard data for March confirmed an unprecedented hit to economic activity from the coronavirus pandemic, with retail sales seeing the sharpest monthly fall in the survey’s 30-year history and manufacturing output experiencing its biggest decline …
16th April 2020
Sharpest fall since 1946; even worse to come in April The 5.4% m/m plunge in industrial production in March, which was the sharpest monthly fall since 1946, highlights that while coronavirus containment measures have primarily slammed the brakes on …
15th April 2020
Collapse in discretionary spending partly offset by grocery store surge The 8.7% fall in retail sales last month suggests that first-quarter real consumption declined by up to 5% annualised. As the lockdowns were only introduced in the middle of last …
The Paycheck Protection Program (PPP) of forgivable small business loans has come too late to prevent the huge initial wave of layoffs, but will be more useful in helping less directly affected firms stay afloat while limiting the rise in unemployment. By …
14th April 2020
Headline inflation to fall temporarily to zero The 0.4% m/m decline in consumer prices in March, which was principally due to a 10.5% m/m drop in gasoline prices, pushed the annual rate of headline CPI inflation down to 1.5%, from 2.3%. But that is just a …
10th April 2020
This week brought early signs that the restrictions put in place over recent weeks are flattening the epidemic curve in the US. But set against that good news, there are clearer signs that the hit to employment has been harder than we initially …
9th April 2020
The significant increase in unemployment insurance payments included in the recent fiscal package means that many claimants could end up being paid close to what they previously earned. This suggests that the unprecedented wave of layoffs in recent weeks …
8th April 2020
The coronavirus-related recession will lead to a marked increase in defaults on bank loans but, while that will hit earnings and justifies the sharp sell-off in banking stocks, the greatly improved financial health of banks means that we don’t believe …
7th April 2020
Overview – As a result of the coronavirus and the containment measures put in place to constrain its spread, we now anticipate an unprecedented 40% annualised decline in second-quarter GDP, with the unemployment rate spiking to 12.5% within a few months. …
6th April 2020
In case it hadn’t fully hit home yet, the surge in jobless claims last week, the reported collapse in vehicle sales and employment in March, and the size of the Fed’s policy response all underlined that the pandemic has taken us into uncharted waters. …
3rd April 2020
Unemployment set to surge above 10% The 701,000 plunge in non-farm payrolls in March, which is already close to the worst monthly declines during the Global Financial Crisis, suggests the coronavirus pandemic started to decimate the economy even sooner …
The Fed’s balance sheet has already ballooned in size to $5.7trn, from just less than $4trn before the coronavirus pandemic struck, and that’s before the introduction of its new lending facilities and purchases of corporate and municipal bonds. Using …
2nd April 2020
Claims hit record high; vehicle sales plummet This Update was originally sent to clients as a Rapid Response immediately after the data was released on 2 nd April. The surge in initial jobless claims to a record high of 6,648,000 last week, from 3,307,000 …
Manufacturing avoids big initial hit The marginal fall in the headline ISM manufacturing index to 49.1 in March, from 50.1, indicates that the initial hit to the factory sector from the coronavirus was more muted than feared. With many factories now …
1st April 2020
The agreement on a $2trn fiscal stimulus, the Fed’s actions and tentative signs that quarantine measures in Europe are beginning to curb the virus spread have all helped steady the mood in markets this week. But as the grisly 3.3m rise in jobless claims …
27th March 2020
The March employment report is more or less irrelevant at this stage because we already know that millions of workers have been laid off since the survey was conducted earlier this month. For what it’s worth, we expect a 95,000 increase in non-farm …
26th March 2020
Business equipment investment weak before the virus hit The rise in durable goods orders in February reflected a surge in transport orders, with underlying capital goods orders and shipments falling back. That suggests business equipment investment was on …
25th March 2020
With the number of COVID-19 cases in the US skyrocketing and a rising share of the population under lockdown, we need to revise our macro forecasts quite significantly: We now expect second-quarter real GDP to fall at a 40% annualised pace, with …
The $2trn stimulus package agreed by Congress will include a permanent fiscal expansion worth up to 5% of GDP and, in conjunction with the new lending facilities announced by the Fed, could channel up to $6trn in temporary financing to consumers and firms …
This Update was originally sent to clients as a Rapid Response immediately after the Fed’s policy statement on 23 rd March. The Fed’s expansion of its open-ended QE, together with new measures to lend directly to firms shows the Fed is moving beyond …
24th March 2020
Normally it takes months before economists are sure that the economy has fallen into a recession, but the scale of the declines in the range of daily indicators we’re tracking (available on our website here ) mean it’s all but certain the economy is now …
20th March 2020
The Republican senators’ fiscal proposals would provide an immediate stimulus worth more than 2% of GDP and help to offset some of the damage to the economy from the coronavirus outbreak. That said, with layoffs already surging and a clear risk that the …
