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Manufacturers still struggling The muted rebound in the ISM manufacturing index to 48.3 in October, which left it only slightly higher than September’s decade low of 47.8, takes some of the shine off the better-than-expected payrolls data released earlier …
1st November 2019
Underlying pace of payroll gains rebounding The solid 128,000 gain in non-farm payrolls was more impressive than it looked given it was depressed by the GM strike and a census-related drop in Federal employment. Together with upward revisions to previous …
The Fed cut interest rates for a third time as expected today, to between 1.5% and 1.75%, but changes in the statement suggest it is trying to dissuade the markets from pricing in any further loosening. Nevertheless, we still anticipate that a further …
30th October 2019
Slowing activity growth will keep the Fed cutting The 1.9% annualised increase in third-quarter GDP, down only marginally from the 2.0% gain in the second, was a little stronger than we had expected. But it still pushed the economy’s annual growth rate …
Yield curve un-inversion lowers recession risk With the yield curve un-inverting, our composite model indicates that the probability of a recession in 12 months’ time has fallen to 11.7%, from a recent peak of more than 20%. (See Chart 1.) Nevertheless, …
28th October 2019
The Fed will probably cut interest rates for third consecutive time at the conclusion of its two-day policy meeting Wednesday. That will come shortly after GDP figures for the third quarter are released, which we expect to show growth was a muted 1.5% …
25th October 2019
We estimate that non-farm payrolls rose by just 25,000 in October, mainly reflecting disruption caused by the strike at GM. Even excluding that temporary hit, however, the underlying pace of employment growth still appears to be slowing. The 136,000 gain …
24th October 2019
GM strike plays only minor role in orders weakness The 1.1% m/m decline in durable goods orders in September was only partly due to the GM strike, with an unexpected decline in commercial aircraft orders and weakness in underlying orders also contributing …
Officials have not pushed back on expectations for a 25bp cut this meeting Further slowdown in economic growth will prompt one final 25bp cut in December Rates would end up back at zero in a recession, but few signs one is imminent With the markets still …
23rd October 2019
The news of an apparent trade “deal” between the US and China has pushed back the threat of further tariffs and helped to un-invert the yield curve, but economic growth still appears to be slowing. Our tracking estimate suggests that growth slowed to 1.5% …
21st October 2019
Agreement to end GM strike won’t save October The tentative deal agreed this week between General Motors (GM) and the United Auto Workers (UAW) Union came too late to prevent a sharp downturn in October’s employment data, but any declines should be …
18th October 2019
Output dragged down by GM strike The 0.4% m/m decline in industrial production in September was principally due to the GM strike, which dragged down autos production, and the unseasonably warm weather, which depressed utilities output. Nevertheless, aside …
17th October 2019
The Fed’s move to begin purchasing $60bn of Treasury bills per month will eventually push the size of its balance sheet back up to $4trn over the coming year, not far below its $4.2trn peak. However it would be wrong to view this as a complete …
16th October 2019
Underlying consumption growth slowing The drop back in retail sales in September was driven partly by a price-related drop in gasoline sales, but the fact that underlying control group retail sales were unchanged provides another clear sign that …
Trade talks with China look set to conclude today with a “mini deal”, reducing the immediate risks of a further rise in tariffs. But existing tariffs will remain in place, including the September tariff hike, which has yet to really affect the economy. …
11th October 2019
No sign of tariff impact The muted gain in core consumer prices in September illustrates that, even after the introduction of additional tariffs on Chinese imports, inflationary pressures are still well contained. In that environment, a further slowdown …
10th October 2019
The strike at General Motors, together with continued problems at Boeing, means that the incoming manufacturing data over the next month or two will go from bad to terrible . That is another reason to expect economic growth to slow further in the fourth …
9th October 2019
Other surveys suggest that the ISM manufacturing index is over-playing the extent of the factory-sector slowdown. But the wider evidence suggests the outlook for manufacturers is still pretty poor. The fall in the ISM manufacturing index to a 10-year low …
7th October 2019
The slump in the ISM manufacturing index to a decade-low in September together with the fall in the non-manufacturing index to a three-year low triggered renewed fears that the US economy is headed for a recession. (See Chart 1.) But September’s payroll …
4th October 2019
Employment growth easing rather than collapsing The 136,000 increase in non-farm payrolls in September illustrates that while growth in employment (and broader activity) has slowed, it is not collapsing. Otherwise, the employment report was something of a …
The perfect storm of global weakness, trade war and GM strike The slump in the ISM manufacturing index to a decade low of 47.8 in September, from 49.1, will reignite fears that the US economy is headed for a recession. Our guess is that this deterioration …
1st October 2019
The impeachment inquiry launched by the House Democrats against President Donald Trump will dominate the headlines over the coming months. It is unlikely to have any major impact on markets or the economy during that time but, if it clears a path for …
27th September 2019
Consumption growth slowing; equipment investment stagnant The modest rise in personal spending in August suggests that third-quarter consumption growth was weaker than we had previously anticipated, while the durable goods data indicate that business …
Overview – We expect GDP growth to slow from 2.3% this year to 1.4% in 2020, before a more favourable post-election policy mix generates a rebound to 2.0% in 2021. Under those circumstances, we anticipate one final 25bp interest rate cut from the Fed in …
26th September 2019
We estimate that non-farm payrolls increased by a muted 125,000 in September, with the unemployment rate steady at 3.7%. The 130,000 gain in non-farm payrolls in August was flattered by the hiring of 25,000 temporary workers in preparation for next year’s …
Recession risk still elevated Our composite model suggests that the risk of a recession in 12-months’ time has fallen slightly to 17.9%, from above 20% a few weeks ago, as the rebound in the 10-year Treasury yield has reduced the inversion of the yield …
23rd September 2019
With attention focused on the impact of tariffs on goods trade, the recent decline in services exports has gone largely unnoticed. But that has already knocked a few tenths off GDP growth and, with the weakness concentrated in sectors in which the US has …
The Fed voted to cut its key policy rate by another 25bp earlier this week, but it is deeply split over what to do next. Close to one-third of the FOMC is projecting another rate cut before year-end, while close to another third disagreed with this week’s …
20th September 2019
The Fed voted to cut its key policy interest rate by an additional 25bp today, to between 1.75% and 2.00%, but the FOMC is more split than ever over what to do next. Close to one-third of the FOMC is projecting another rate cut before year-end, while …
18th September 2019
The Fed will look through any rise in headline inflation resulting from the recent jump in crude oil prices, but the acceleration in core CPI inflation, to an 11-year high in August, is harder to ignore. (See Chart 1.) Tariffs on Chinese imports explain …
Manufacturing not out of the woods yet The stronger-than-expected 0.6% m/m rebound in industrial production in August, which was driven by manufacturing, suggests that the drag on US producers from weaker global demand may be starting to fade. But the …
17th September 2019
The Fed is almost certain to cut its policy rate by another 25bp at next week’s FOMC meeting to between 1.75% and 2.00%. But rising core inflation, the still-solid incoming activity data and the temporary thaw in the US-China trade war all support our …
13th September 2019
Underlying sales growth slows to more sustainable pace The 0.4% m/m increase in retail sales in August, which was well above the consensus expectation at 0.2% m/m, was helped by a suspicious looking 1.8% m/m increase in motor vehicle sales. Otherwise, …
Core inflation hits 11-year high even before impact of latest tariffs The further rise in core CPI inflation to an 11-year high of 2.4% in August won’t stop the Fed from cutting interest rates again next week, but it does provide further reason to believe …
12th September 2019
President Donald Trump’s call for the Fed to slash interest rates to zero or “less”, so that the Treasury can lock-in low borrowing costs for the very long term, sounds appealing in a sustained low inflation environment. But the evidence from other …
11th September 2019
Fed to deliver widely-expected 25bp cut; data still too strong to justify 50bp We expect a further economic slowdown to prompt a final 25bp cut in December Further significant loosening unlikely in the absence of a recession The Fed looks set for another …
The latest NFIB and JOLT surveys point to a drop in business equipment investment over the rest of the year and provide more evidence that labour market conditions are no longer tightening. The small fall in the NFIB index in August suggests that, in …
10th September 2019
The sharp fall in market interest rates over the past 12 months is starting to support the economy, with activity growth in rate-sensitive sectors like durables consumption and housing rebounding in recent months. With income growth slowing and the …
9th September 2019
In a week of mixed economic data releases, it was the news that the US and China would resume trade talks next month that proved to be the biggest development – pushing the S&P 500 back toward a record high and trimming market expectations for additional …
6th September 2019
Sharp slowdown in private job growth partly offset by temporary census hiring The 130,000 gain in non-farm payroll employment in August was flattered by the hiring of 25,000 temporary workers to help prepare for next year’s census. More generally, there …
The inversion of the yield curve and the deterioration in survey-based indicators have raised fears that the US is headed for a recession, but the hard economic data and other financial indicators suggest the risks remain low. To cut through the …
5th September 2019
Net trade likely to remain a drag on GDP growth The small narrowing in the trade deficit in July was driven by a rise in exports and leaves net trade on track to be nothing worse than a small drag on GDP growth in the third quarter. But that drag is …
4th September 2019
Survey weakness will reinforce Fed’s trade war fears The fall in the ISM manufacturing index to 49.1 in August, from 51.2, left the index at its lowest level since January 2016 and points to another 25bp rate cut at the Fed’s meeting later this month. The …
3rd September 2019
The trade dispute with China may be escalating at a rapid pace but, despite the concerns of Fed officials, there is still little evidence that this is having a significant impact on the economy. Following China’s move to levy additional tariffs on $75bn …
30th August 2019
We estimate that employment growth slowed further in August, with non-farm payrolls rising by a below-consensus 110,000. The 164,000 gain in non-farm payrolls in July illustrated that employment growth is slowing markedly. At 141,000, the six-month …
29th August 2019
Fed officials signalled this week that they are content for now to take their cue from the bond market, with Chair Jerome Powell's Jackson Hole speech giving a strong hint that a September rate cut is coming. Earlier this week, the minutes from the July …
23rd August 2019
Despite President Donald Trump’s complaints that the strong dollar is holding back the economy, the dollar’s rate of appreciation matters more than its level and it has risen by only 3% in trade-weighted terms over the past year. Even the further modest …
22nd August 2019
The further inversion of the yield curve – with the 10-2 year spread briefly inverting last week – has heightened fears that a recession is coming soon, but the real economy shows few signs of any imminent capitulation. Aside from industrial production, …
19th August 2019
The Trump administration’s surprise announcement this week that it intended to delay the introduction of the 10% tariff on more than $150bn of finished consumer goods may have saved the Holidays, but it provided only a brief respite for the stock market …
16th August 2019
Recession still confined to manufacturing The soft July industrial production data show that the manufacturing recession continued into the third quarter. But the latest surveys provide some reason for optimism and, as the retail sales data released …
15th August 2019
