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We expect a further slowdown in economic growth to eventually prompt the Fed to cut interest rates, particularly with underlying inflation muted. But it is hard to see that happening before the September FOMC meeting, even though markets have begun to …
12th June 2019
The subdued 0.1% gain in core consumer prices in May extends a run of weaker gains, underlining the lack of significant inflationary pressures a decade into this expansion. Subdued growth in unit labour costs will keep core inflation muted, even as higher …
This week we formally incorporated a further escalation of the US-China trade dispute into our baseline macro forecasts, shaving 0.2% points off US GDP growth both this year and next, taking us to 2.2% and 1.2% respectively. We had previously held out …
7th June 2019
The soft 75,000 gain in non-farm payrolls in May wasn’t quite as bad as the dismal ADP employment reading earlier this week, but it is another sign that economic growth is slowing. On balance, we still think Fed officials will want to see evidence of more …
The impact on prices of a 25% tariff on Mexican imports would be partly offset by a sharp drop in the peso. But the potential disruption to the motor vehicle industry, which relies on a continued flow of parts back and forth across the border, means that …
We are now incorporating a further escalation in the trade war with China into our global forecasts. We think that will knock a few tenths off annual US GDP growth this year and next. Core PCE inflation will be stronger than we thought, but will remain …
6th June 2019
The trade deficit narrowed in April, but only because imports fell more than exports. As a result, after providing a big boost in the first quarter, we expect net external trade to have a neutral impact on second-quarter GDP growth. Elsewhere, the drop in …
In response to the tariffs imposed on China, US importers are switching to alternative suppliers in Asia, which could explain why custom duties revenues have fallen back in the past couple of months. This would represent a “deadweight” loss of real income …
3rd June 2019
The decline in the ISM manufacturing index to a 31-month low of 52.1 in May, from 52.8, illustrates that the factory sector is continuing to struggle in the face of weak global demand. It leaves the index at a level consistent with GDP growth of only 1.5% …
The shock news that President Donald Trump will impose tariffs on all imports from Mexico comes amid mounting evidence that the economy has already lost considerable momentum. The May employment report and ISM activity surveys should help to confirm or …
31st May 2019
President Donald Trump’s shock announcement of tariffs on Mexican imports could be challenged by Congress, but the possibility that both Mexican and Chinese imports might be subject to a blanket 25% tariff presents a significant additional downside risk …
Our new model points to a 190,000 gain in non-farm payrolls in May, although we anticipate a more pronounced slowdown in employment growth over the next few months. The unemployment rate is expected to rebound to 3.7% in May with average hourly earnings …
30th May 2019
The strength of the US economy in the first quarter was presumably one of the factors that emboldened President Donald Trump to take a tougher line with China in the trade dispute. But the incoming data point to a sharp slowdown, which would leave Trump …
24th May 2019
The weakness of the April durable goods data, which showed underlying orders unchanged following a downwardly-revised plunge in March, provides further evidence that economic growth is slowing sharply in the second quarter. … Durable Goods …
Fed officials have dismissed the recent weakness of core inflation, which has fallen to only 1.6% on the PCE measure, as being driven by transitory factors. Methodology changes resulted in a sharp fall in clothing prices, while the plunge in the stock in …
22nd May 2019
The latest escalation in trade tensions could become a bigger drag on the US economy than previous rounds of tariffs. A 25% tariff on all imports from China would be equivalent to a tax worth 0.6% of GDP, only part of which would be offset by an increase …
21st May 2019
President Donald Trump clearly isn’t the only one hoping that the Fed will ride to the rescue amid the escalating trade dispute with China, with the markets now convinced that interest rates will be cut before the end of this year. We agree that the Fed …
17th May 2019
The weaker tone of April’s activity data, with control group retail sales unchanged and manufacturing output falling sharply, supports our view that GDP growth is set to slow in the second quarter. … Retail Sales & Industrial Production …
15th May 2019
President Donald Trump’s surprise move this week to impose higher tariffs on $200bn of Chinese imports could mark the start of a significant escalation in the trade dispute. Nevertheless, it might also prove to be a short-term negotiating tactic that …
10th May 2019
The subdued 0.1% m/m gain in core consumer prices last month was in part driven by falls in clothing and used car prices, which may be reversed in the coming months. But the bigger story has been the slowdown in unit labour cost growth, which we think …
With the rising possibility of a big escalation in the US-China trade dispute this week, March’s trade figures could represent the calm before the storm. The trade deficit widened trivially to $50.0bn, from $49.3bn, as exports increased by 1.0% m/m and …
9th May 2019
President Donald Trump was at his trolling best earlier in the week when he tweeted shortly before the FOMC meeting that the Fed should cut interest rates by 1% point and restart quantitative easing. But the incoming data suggest he might just have a …
3rd May 2019
The 263,000 surge in payroll employment in April was much better than we had expected and kept the six-month trend above 200,000. Some of the details were less positive, with hours worked falling back and the household survey showing anther decline in …
The acceleration in productivity growth suggests the economy’s supply side is responding to the tightness of labour markets and the tax cuts introduced early last year. With investment growth slowing more recently, there’s a good chance productivity …
2nd May 2019
Neither the unexpectedly strong 3.2% gain in first-quarter GDP nor the outsized 0.7% m/m increase in real consumption in March changes our view that the US economy will experience a marked slowdown in growth this year. Together with the renewed weakness …
Although the FOMC left the target for the fed funds rate unchanged at between 2.25% and 2.50% today, as expected, it unveiled a slightly unexpected 5bp cut in the interest on excess reserves (IOER) rate. As Fed Chair Jerome Powell explained in his press …
1st May 2019
In contrast to the sudden weakness in core inflation a few years ago, the latest plunge in core PCE inflation cannot be explained by idiosyncratic factors. Instead, it reflects a moderation in unit labour cost growth, which will persist for some time. …
The slump in the ISM manufacturing index to a 2½-year low in April illustrates that, after the contraction in manufacturing output in the first quarter, US factory conditions have deteriorated further. But the recent improvement in some of the key global …
There were plenty of positive headlines for the US economy this week, with GDP growth accelerating in the first quarter, durable goods orders surging in March, and the S&P 500 hitting a record high. But signs of underlying weakness abound which, together …
26th April 2019
The 3.2% annualised gain in first-quarter GDP, which was well above the consensus forecast at 2.0%, would seem to make a mockery of claims that the economy is slowing as the fiscal stimulus fades. Looking beyond the headline number, however, there are …
Our model suggests that non-farm payroll employment increased by a more modest 165,000 in April, with the survey-based hiring indicators and the recent contraction in temporary help employment both pointing to a broader slowdown. … Manufacturing slump …
25th April 2019
The strong rise in underlying capital goods orders in March, together with stronger retail sales last month, suggests the economy is carrying a bit more momentum into the second quarter. But a drop back in shipments in the same category confirms that …
The Fed will leave interest rates unchanged at its upcoming policy meeting. Chair Jerome Powell may acknowledge in his post-meeting press conference that downside risks to the outlook are fading. But the overall tone is still likely to be dovish, not …
24th April 2019
It is still too early to tell who will end up securing the Democratic nomination for the presidential election in 2020, but there is a good chance that the successful candidate will come from the party’s progressive wing and will support higher taxes on …
23rd April 2019
There are tentative signs that US and global manufacturing may be stabilising, but the latest surveys suggest that activity in the domestic-focused services sector is weakening. … Services slipping as manufacturing …
22nd April 2019
This week’s data releases helped to confirm that first-quarter GDP growth was much better than we originally feared, but the underlying strength of the domestic economy is a concern. As it stands now, we estimate that first-quarter GDP growth was 2.2% …
18th April 2019
The 1.0% m/m rebound in control group retail sales in March was not enough to prevent real consumption growth from slowing sharply in the first quarter, although it does at least provide a decent base for an acceleration in the second quarter. … Retail …
We are sceptical that the decline in initial jobless claims to a 50-year low is providing a reliable guide to current labour market conditions. In recent years, a number of states have made it more difficult to file claims and reduced the generosity of …
17th April 2019
After falling sharply in January, the trade deficit declined a little further in February thanks to a jump in civilian aircraft exports and a subdued gain in imports. Neither of those are particularly compelling reasons to be upbeat about economic …
A surge in business inventories appears to have boosted first-quarter GDP, but the now elevated inventory-to-sales ratio suggests that inventories will be a drag over the remainder of this year, which supports our view that GDP growth will slow to below …
16th April 2019
The 0.1% m/m decline in industrial production in March completed a weak first quarter in which industrial production contracted by 0.3% annualised, as the US factory sector succumbed to the global manufacturing malaise. … Industrial Production …
The economy is still in stronger shape than it usually was when the Fed started cutting interest rates in the past. Based on the Fed’s previous behaviour, however, the economic slowdown that we expect this year should be more than enough to convince …
The March consumer and producer price inflation data released this week highlighted that underlying inflationary pressures continue to fade. That hasn’t gone unnoticed at the Fed, with the March FOMC minutes revealing that officials are increasingly …
12th April 2019
The sustained drop in Treasury yields since early November is one reason why we have upgraded our economic forecasts for 2020, but we do not think that will be enough to prevent economic growth slowing sharply this year. … Lower rates won’t prevent …
The further decline in core CPI inflation to a 13-month low of 2.0% in March underlines that there is little chance of inflation breaking out above the Fed’s target any time soon. We continue to expect that weaker activity growth will convince officials …
10th April 2019
The latest NFIB and JOLT surveys suggest that investment growth is set to slow and provide further evidence that labour market conditions are no longer tightening. … Surveys add to evidence of labour market …
9th April 2019
The Fed began publishing interest rate projections submitted by FOMC participants as far back as 2012, but in the past seven years only one maverick official has ever forecast a cut in interest rates. As markets are now beginning to price in the prospect …
8th April 2019
The data releases this week strengthen our belief that the apparent weakness of GDP growth in the first quarter won’t just be a temporary blip. We expect a continued economic slowdown to convince the Fed to start cutting interest rates before the year is …
5th April 2019
The 196,000 gain in non-farm payrolls March will be greeted with a sigh of relief after the disappointing 33,000 increase in February, but employment growth is nevertheless on a downward trend – with the three-month average monthly gain dropping to a …
We expect GDP growth to slow from 2.9% to 2.0% this year and only 1.4% in 2020. That weakness should convince the Fed to reverse course and cut interest rates by a cumulative 75bp, with the first reduction probably now coming before the end of this year. …
3rd April 2019
