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US consumer rides to the rescue (again) With the rest of the world sliding into the abyss, the July retail sales figures show a resurgent US consumer riding to the rescue once again . Even though the surge in retail sales in July was flattered by Amazon …
15th August 2019
We still anticipate a modest economic downturn rather than a recession, but the spreading weakness in other parts of the global economy has increased the danger of an outright economic contraction in the US. In addition, there are some key downside risks …
14th August 2019
The three-month delay to the imposition of tariffs on more than half of the $300bn of Chinese imports, originally scheduled to take effect next month, is obviously designed to avoid a politically-damaging rise in consumer prices ahead of the holiday …
13th August 2019
Rebounding core inflation unlikely to prevent further rate cuts The stronger than expected 0.3% m/m rise in core consumer prices in July, which followed a similar-sized gain in June, suggests that underlying inflationary pressures may not be as subdued as …
With economic growth slowing rather than collapsing and both wage and price inflation rebounding in recent months, further interest rate cuts are hard to justify on purely economic terms. Admittedly, a further escalation of the trade war in the coming …
9th August 2019
The Trump administration’s move to label China a currency manipulator may have few practical implications, but it underscores the speed at which tensions are now escalating. The key risk is that the damage from tariffs is compounded by a sustained …
6th August 2019
The Fed’s Senior Loan Officer Survey suggests that the sharp fall in market interest rates over the past year is feeding through to a turnaround in loan demand. With global growth still slowing and trade tensions escalating, that won’t be enough to …
5th August 2019
Despite cutting rates by 25bp this week, the Fed gave no indication that it is lining up another cut soon or that this will mark the start of the extended easing cycle investors are hoping for. But with President Donald Trump’s subsequent move to …
2nd August 2019
Jobs growth trending lower The 164,000 gain in non-farm payrolls in July confirms that employment growth is trending lower, but it also suggests that the economy is still coping reasonably well amidst concerns over weaker global growth and trade policy …
The announcement by President Donald Trump of further tariffs on Chinese imports has rattled the markets, but we have long suspected that it was only a matter of time before the trade dispute escalated further. With those tariffs likely to have a more …
Fed right to be concerned by weak global demand The further decline in the ISM manufacturing index to a three-year low of 51.2 in July, from 51.7, confirms that the downturn in the factory sector continued into the third quarter, and suggests that Fed …
1st August 2019
The Fed reduced the fed funds rate by 25bp — to between 2.00% and 2.25% — at today’s FOMC meeting, but it was arguably a “hawkish” rather than “dovish” cut, which supports our view that the next reduction won’t arrive until much later this year. According …
31st July 2019
The rebound in the three-month annualised rate of core PCE inflation to a seven-year high of 2.5% in June, together with evidence that unit labour costs have been rising more rapidly than thought, suggests that core inflation could surprise on the upside …
30th July 2019
The grounding of the Boeing 737 Max aircraft delivered a hit to business equipment investment and net exports in the second quarter, reducing annualised GDP growth by 0.25% points. A similar hit to third quarter GDP is likely if production is cut further …
29th July 2019
The Fed is likely to cut interest rates by 25bp at next week’s FOMC meeting. New York Fed President John Williams put the markets into a frenzy last week by arguing in a speech that the Fed should move quickly to ease policy at the first signs of a …
26th July 2019
Slowdown limited by boost from consumption and government Second-quarter GDP growth slowed to 2.1% annualised, from 3.1% in the first, but that drop off would have been even bigger if not for a surprisingly strong gain in government expenditure. In short, …
Our model points to a renewed slowdown in payroll employment growth in July to just 145,000, from 224,000. As the economy slows further, we expect a more marked downturn in employment growth later this year. Although payrolls rose by 224,000 in June, the …
25th July 2019
Stronger business investment offset by bigger drag from inventories The surge in durable goods orders in June suggests that business equipment investment is holding up a bit better than we anticipated. But with the incoming global data still deteriorating …
Fed likely to cut rates by 25bp next week, rather than 50bp Economy not yet weak enough to justify additional easing But we expect slowing growth to prompt further cuts in December and March next year The Fed is likely to cut interest rates by 25bp next …
24th July 2019
The budget deal agreed by the Trump administration and Congress removes the risk of a damaging debt ceiling crisis in September and prevents a contraction in discretionary spending from October onwards. But our forecasts already assumed that the old …
23rd July 2019
We expect to learn next week that second-quarter GDP growth slowed to only 1.6% annualised, from 3.1% in the first, which should reinforce expectations that the Fed will cut interest rates at the FOMC meeting a week later. But politics are likely to take …
19th July 2019
Despite the run of stronger activity data in recent weeks, the deterioration in the survey evidence, lingering uncertainty over trade policy and the prospect of a prolonged period of below-target inflation all suggest there is still a decent case for the …
18th July 2019
The Fed is almost certain to cut interest rates at the FOMC meeting later this month, despite some better news on the real economy. Payroll employment growth was much stronger than expected in June, the resurgence in underlying retail sales suggests that …
17th July 2019
Reaching a bipartisan deal to raise the debt ceiling by early September should be a relatively straightforward exercise, but the increasingly confrontational relationship between President Donald Trump and House Democrats means that the odds of another …
Bounce in manufacturing output likely to be short-lived Industrial production was unchanged in June, as a weather-related drop in utilities output offset a 0.4% m/m rise in manufacturing output. But with global demand still weak, we doubt the latter …
16th July 2019
Underlying sales post strongest quarterly gain since 2005 The 0.7% m/m surge in underlying retail sales in June, along with upward revisions to previous months’ gains, suggests that real consumption growth accelerated to 4.0% annualised in the second …
Chair Jerome Powell signalled earlier this week that the Fed still intended to push ahead with a July rate cut, despite the post-G20 trade truce, the resilience of the labour market and signs of a rebound in inflation. Powell revealed in his testimony …
12th July 2019
Significant rebound in core inflation still looks unlikely The stronger 0.3% m/m gain in core consumer prices in June won’t prevent the Fed from cutting interest rates later this month and, in any case, we doubt that strength will be sustained. Headline …
11th July 2019
Leading economic indicators underline that most of the recent weakness has been confined to the export-orientated industrial sector, suggesting the risks of an outright recession are contained for now . The Conference Board leading index, which combines …
10th July 2019
Chair Jerome Powell’s semi-annual testimony to Congress indicates that, despite the trade truce following the recent G20 meeting and the strength of employment growth in June, the Fed intends to push ahead with a rate cut at the FOMC meeting at the end of …
The latest NFIB and JOLT surveys point to a contraction in business equipment investment and suggest that labour market conditions are starting to soften. The fall in the NFIB small business index in June left it above its long-run average, but there has …
9th July 2019
The recent acceleration in productivity growth to a decade high of more than 2% y/y has renewed hopes that we could finally be seeing a structural pick-up linked to a new wave of technological advances. (See Chart 1.) We are optimistic about the potential …
President Donald Trump’s recent tweets have sparked speculation that, as part of an escalation of the trade war, he could order the Treasury to intervene in foreign exchange markets to manipulate the dollar lower. Historically, however, attempts to weaken …
8th July 2019
The data this week were consistent with a continued slowdown in economic growth, but don’t yet look weak enough to convince the Fed to cut interest rates immediately. We suspect that Chair Jerome Powell will use his semi-annual testimony to Congress next …
5th July 2019
Payrolls too strong to justify immediate Fed rate cut The 224,000 gain in non-farm payrolls in June was much stronger than the consensus estimate of 160,000 and would seem to make a mockery of market expectations that the Fed will cut interest rates by up …
The unprecedented surge in state & local government investment, which added close to 0.4%pts to annualised GDP growth in both the first and second quarters, is unlikely to be sustained. This is another reason to expect growth to slow sharply in the second …
3rd July 2019
Broad money growth accelerated to a decade high in May, as past increases in interest rates boosted portfolio demand, but the more recent renewed slump in rates will trigger a slowdown in the second half of this year. (See Chart 1.) The decline in …
Net trade likely to remain a drag on GDP growth The sharp widening in the trade deficit to $55.5bn in May, from $51.2bn, suggests that net trade was a slightly bigger drag on second-quarter GDP growth than we had previously anticipated, with the latter …
With the economic slowdown feeding through to weaker job gains, the apparent surge in consumption growth in the second quarter will not be sustained. But the strength of households’ balance sheets and the still-elevated saving rate suggest that, barring a …
1st July 2019
Manufacturing conditions still deteriorating Although the ISM manufacturing index didn’t fall as far as feared in June, the decline in the more forward-looking new orders component suggests the worst is still to come . The drop in the headline index to a …
If the meeting between Presidents Trump and Xi at the G-20 tomorrow is successful, we would expect both sides to agree to resume negotiations and hold off on imposing new tariffs. But, given the fundamental differences between the two sides, we expect …
28th June 2019
Overview – We expect GDP growth to slow sharply in the second half of this year, prompting the Fed to cut interest rates by a cumulative 75bp. GDP growth will slow from 2.3% this year to 1.2% in 2020, before looser financial conditions prompt a recovery …
27th June 2019
Our model points to a subdued 125,000 gain in non-farm payrolls in June, suggesting that the labour market is succumbing to the broader slowdown in economic growth. The unemployment rate should remain at 3.6% in June, but we expect it to begin rising in …
Orders weighed down by Boeing’s woes The 1.3%m/m decline in durable goods was largely a reflection of Boeing’s problems following the grounding of its 737 Max, with the rebound in underlying orders and shipments suggesting that business equipment …
26th June 2019
As far as the markets are concerned, this week the Fed all-but guaranteed a July rate cut. On balance, we still suspect that a delay until September is a little more likely, but much will depend on the outcome of the Trump-Xi meeting at next week’s G20 …
21st June 2019
Although only a minority of Fed officials anticipate that interest rates will need to be cut at all this year and not a single official believes that rates will need to be reduced by more than 50bp in total over the next few years, the markets …
20th June 2019
The Fed is now leaning towards lower interest rates later this year, but we still believe that the first rate cut will be delayed until September, with another 25bp reduction coming in December and then a final cut in March next year. … Fed breaks new …
19th June 2019
The weakness in core consumer prices in May, which increased by only 0.1% m/m for a fourth consecutive month, is not on its own a valid reason for the Fed to cut interest rates at the upcoming FOMC meeting next week. … Fed unlikely to unveil panic rate …
14th June 2019
The 0.4% m/m rebound in industrial production in May was largely due to a weather-related 2.1% m/m bounce-back in utilities output. Given the weak global backdrop and the deteriorating survey evidence, we expect the manufacturing sector to continue …
The stronger 0.5% m/m rise in underlying retail sales in May, along with upward revisions to previous months’ gains, suggests that real consumption growth will accelerate to almost 4% annualised in the second quarter. We continue to expect that a sharper …
