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With the fiscal stimulus acting as a strong tailwind, economic growth has been unusually strong over the past few months but, below the surface, signs are emerging that rising interest rates have begun to weigh on some parts of the economy. … Are rising …
29th August 2018
In his Jackson Hole speech, Fed Chair Jerome Powell revived Greenspan-era arguments that policy should be flexible and follow a “risk management” approach, but we doubt this amounts to much in practice. The Fed appeared to follow policy rules closely in …
The rebound in the Conference Board’s consumer confidence measure to a 17-year high of 133.4 in August is primarily a reflection of the current strength of the economy, but with the expectations index rising more modestly in recent months, it does little …
28th August 2018
Today’s announcement of a bilateral trade agreement is definitely good news for Mexico and the US, but could be good or very bad for Canada. More generally, it illustrates that, despite the Trump administration’s intransigence over trade disputes in …
27th August 2018
Amid all the political drama of the past week, the clear message from Fed officials is that they remain committed to their plans to continue raising interest rates. That’s unlikely to change until next year. … Fed ignoring the …
24th August 2018
Despite the decline in headline orders, the July durable goods data suggest that business equipment investment growth is set to rebound in the third quarter. That provides further reason to think that overall GDP will expand at a solid 3.0% to 3.5% …
Both the consensus and financial markets are coming around to our view that the Fed will cut interest rates in 2020, but we still think they are underestimating how soon and how fast the Fed’s policy cycle is likely to turn. We expect that a sharp …
22nd August 2018
President Donald Trump’s recent public criticism of Fed Chair Jerome Powell is a clever attempt to pre-emptively blame the Fed and its interest rate hikes for any future downturn in the US economy. The particular danger for him is that weakness could …
The slowdown in narrow money growth reflects the Fed’s efforts to shrink its balance sheet and the rise in interest rates, with the latter increasing the opportunity cost of holding funds in non-interest bearing deposit accounts. In contrast, broad money …
21st August 2018
There is no reason to believe that the latest bout of turbulence in emerging markets will prompt the Fed to reconsider future interest rate hikes, since the economic and financial market spillovers are likely to be limited and come at a time when domestic …
The near 6% rally in the dollar this year will trigger a slowdown in real export growth but, unlike the bigger dollar appreciation in 2014 and 2015, it won’t stop the Fed from continuing to hike interest rates. … Dollar’s rise won’t knock the Fed off …
17th August 2018
We learned this week that much of the strength of consumption growth in the second quarter was sustained in July, suggesting that third quarter GDP growth will be stronger than we had anticipated. The July retail sales figures showed control group sales …
With inflation trending higher and economic growth receiving a boost from this year’s fiscal stimulus, it is unlikely that the destabilising declines in a few emerging market currencies will force the Fed to abandon its plans to raise interest rates once …
16th August 2018
The more modest 0.3% increase in manufacturing output in July adds to the evidence that growth in the manufacturing sector has peaked. Even if a major escalation of tariff barriers is avoided, the appreciation of the dollar this year means growth in the …
15th August 2018
Despite the continued strength of retail sales in July, real consumption growth still looks set for a gradual slowdown in the third quarter, as the boost from the recent tax cuts starts to fade. … Retail Sales (Jul.) & Productivity …
Data this week showed core inflation hitting a decade high in July, even before the impact of the recent tariffs has had a chance to fully feed through. Against that backdrop, the Fed is almost certain to raise interest rates again at the FOMC meeting …
10th August 2018
The acceleration in core inflation to 2.4% in July, a decade high, will be enough to convince the Fed to raise interest rates again in September. … Consumer Prices …
Rising interest rates appear to be weighing on mortgage demand but, for now at least, there are few signs of a sharp slowdown in consumer and business lending on the horizon. … Rising interest rates not a major drag on credit …
9th August 2018
The June Job Opening and Labour Turnover survey provided more evidence that labour market conditions are tightening, which will keep wage growth on a steady upward trend. With few signs of a sustained upturn in productivity growth, that will push core …
7th August 2018
The most likely outcome of the midterm elections is legislative gridlock, although a second round of tax cuts would be unlikely even if the Republicans narrowly maintain control of both Houses of Congress. … Midterms 2018: What's at …
While the Fed hailed activity growth as “strong” at its policy meeting this week, we doubt GDP growth will maintain a 4% plus annualised pace in the third quarter. It’s early days, but data released this week support our view that growth will slow to a …
3rd August 2018
Non-farm payrolls increased by a more modest 157,000 in July but, with the gain in the preceding two months revised up by a cumulative 59,000, the labour market still appears to be in good health and any negative market reaction should be limited. This …
As was widely expected, the Fed left interest rates on hold today but, by upgrading its assessment of economic growth to “strong” in the accompanying policy statement, it hinted that it will keep raising rates once a quarter. Despite the uncertainty over …
1st August 2018
With the dollar strengthening, activity surveys weakening in other countries and concerns rising over the impact of tariffs, we suspect that, following July’s fall, the ISM manufacturing index will continue to weaken gradually through the second half of …
The upward revisions to the personal saving rate suggest that the consumption outlook could be brighter than we previously believed, but we would urge caution since those revisions are hard to square with the household wealth data. … Is the saving rate …
Growth in the broad monetary aggregates and bank lending has continued to accelerate in recent months even as the monetary base contracted, suggesting that the Fed’s balance sheet run-down is having little impact on the wider economy. … Monetary …
31st July 2018
Unlike the pre-tariff spike in soybean exports, the near-100% annualised surge in mining structures investment in the second quarter, which accounted for 0.4% points of the 4.1% annualised gain in overall GDP, is not a temporary spike that will be …
30th July 2018
The acceleration in GDP growth, to an impressive 4.1% annualised in the second quarter, is principally due to the massive fiscal stimulus unleashed at the start of this year. Unfortunately, there is little evidence that tax cuts have improved the supply …
27th July 2018
The 4.1% annualised gain in second-quarter GDP should ensure that the Fed continues to hike its policy rate once every quarter, particularly as core PCE consumer prices increased by 2.0% annualised and the annual core inflation rate increased to 1.9%, …
The unexpectedly successful trade meeting between President Donald Trump and EU President Jean-Claude Juncker yesterday has raised hopes that a much bigger trade war can be averted. Admittedly, the lack of details in the ‘deal’ agreed yesterday suggests …
26th July 2018
We anticipate a 220,000 gain in non-farm payroll employment in July, with the unemployment rate falling back below 4% and average hourly earnings posting a 0.3% m/m increase. Despite objections from the White House, that will prompt the Fed to continue …
The 1.0% m/m rise in headline durable goods orders in June was partly driven by the volatile transport category. But underlying orders also picked up, suggesting that the apparent slowdown in second-quarter equipment investment growth will be reversed …
The Fed is unlikely to make any policy changes at next week’s FOMC meeting. But we expect the post-meeting statement to signal that, despite uncertainty over trade policy and criticism from President Donald Trump, officials are still planning to raise …
25th July 2018
Recent trends in the survey evidence cast doubt on the idea that the Treasury yield curve is giving a misleading signal due to structural distortions. The curve may have steepened in recent days but we still expect it to invert sometime next year, which …
24th July 2018
The GDP data due next week are likely to show the economy expanding at a solid pace in the second quarter. Uncertainty over trade policy appears to be worrying some firms but, with little sign so far of any impact on activity, that won’t stop the Fed from …
20th July 2018
The Fed’s preference is to stick to the balance sheet normalisation plan it drew up last year, but we think a sharp economic slowdown will prompt the Fed to halt its balance sheet run-off in 2020. In the meantime, upward pressure on money market rates may …
18th July 2018
Our calculations suggest that second-quarter GDP growth was as strong as 4.5% annualised, driven by a rebound in consumption growth and a big export-fuelled contribution from net external trade. It should be all downhill from here, however. The dollar’s …
The rebound in manufacturing output in June means the sector posted another near-2% gain in the second quarter overall but, with the dollar strengthening markedly in recent months and retaliatory tariffs beginning to bite, that growth is unlikely to be …
17th July 2018
The recent flattening of the Treasury yield curve appears to have been driven partly by structural forces, but this time is rarely different and when the yield curve inverts, an economic slowdown usually follows. We expect both to happen next year. … Is …
16th July 2018
Although underlying retail sales disappointed in June, upward revisions to earlier months mean that real consumption growth still appears to have accelerated to a healthy 3% annualised in the second quarter. We expect that strength to continue into the …
The financial markets will have one eye on President Donald Trump’s summit with Russian President Vladimir Putin next week, but Fed Chair Jerome Powell’s semi-annual congressional testimony is likely to take centre stage. Powell, who has been a revelation …
13th July 2018
The continued upward trend in core CPI inflation, which rose from 2.2% to 2.3% in June, keeps the Fed on track to raise interest rates twice more this year. … Consumer Prices …
12th July 2018
Even though the tariffs actually imposed up to now are relatively small in comparison to overall trade flows and GDP, it is hard to see how a full-blown trade war can be avoided at this stage. There is no-one left in the administration or in Congress to …
11th July 2018
President Donald Trump would probably struggle to pull the US out of the WTO on his own. But unless Congress starts taking a tougher stance against his protectionist urges, the continued use of tariffs justified on national security grounds could …
The NFIB survey and JOLTS figures released today show that labour market conditions are still tightening. … NFIB & JOLT surveys point to rising cost …
10th July 2018
The rush by US exporters to beat the imposition of retaliatory tariffs on soybeans by China will provide an artificial boost to second-quarter GDP growth, but will become a potentially significant drag in the third quarter. … Soybean tariffs causing …
9th July 2018
Activity is booming, with employment up by more than 200,000 again in June and second-quarter GDP growth apparently close to 4% annualised. But, alongside the recently imposed tariffs, strong activity is adding to price pressures, particularly in some …
6th July 2018
The 213,000 gain in non-farm payrolls in June, which followed an even stronger 244,000 rise in May, provides further evidence that uncertainty over trade policy isn’t yet having a major impact on the economy. It also leaves the Fed firmly on track to …
Applying tariffs on auto imports would represent the biggest escalation of protectionism so far. Even though the direct impact would be small, boosting the price level by 1% point or so and triggering a slump in new car sales, it may have a much larger …
5th July 2018
The monetary data reveal a sharp slowdown in M1 growth in May, to its weakest pace since early 2016. But this isn’t a serious concern. Our measure of M3 broad money continued to expand at a decent rate, while bank lending growth looks set to accelerate …
