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At first glance, the apparently lacklustre 0.2% m/m increase in June's retail sales, which was well below our own 0.6% estimate, would seem to suggest that consumption ended the second quarter on a disappointing note. However, the details of the report …
15th July 2014
Canada's economy will struggle over the next two years due to a housing-induced slowdown that potentially could push the economy close to stagnation before the end of 2016. While export and investment growth should improve somewhat, this won't be enough …
14th July 2014
The recent rise in core inflation is not just “noise” as Janet Yellen suggested and instead a large partof it is linked to a decline in the amount of spare capacity in a number of different sectors. Afurther rise in core inflation as the economic recovery …
9th July 2014
The higher post-crisis cost of financial intermediation, increased risk aversion, higher precautionary saving and the decline in the US economy's potential growth rate mean that the neutral real fed funds rate is probably now close to 1%. Assuming that …
7th July 2014
The data released in the last week of the second quarter added to other evidence suggesting that the economy is getting back on track after a disastrous first quarter. This provided further tentative support to our recent decision to bring forward our …
The evident strength of the labour market in June is one of the key reasons why we think that the Fed will be persuaded to begin raising interest rates earlier than most expect. The unemployment rate hit a near six-year low of 6.1% last month and the …
3rd July 2014
The ISM manufacturing index was broadly unchanged in June and is still consistent with annualised GDP growth rebounding to almost 3% in the second quarter. … ISM Manufacturing Index …
1st July 2014
Following the reported decline in first-quarter hospital revenues in the Quarterly Services Survey, we had anticipated that last week's GDP revision would show the economy contracted much more severely than previously believed. But that doesn't mean the …
30th June 2014
Our econometric model suggests that non-farm payroll employment increased by another healthy 200,000 in June and that the unemployment rate fell to 6.2% from 6.3% in May. Meanwhile, the recent surge in bank lending suggests that small businesses may soon …
26th June 2014
Although the bigger than expected fall in GDP in the first quarter has forced us to revise down our forecast for growth in 2014 as a whole, it doesn’t alter our view that the economy is fundamentally sound. Annualised growth will rebound in the second …
25th June 2014
The Conference Board's measure of consumer confidence rose to a six-year high of 85.2 in June, from 82.2, as the positive effects from an improving labour market and record high equity prices trumped the negative effect from rising gasoline prices. All of …
24th June 2014
The weather-related slump in activity in the first quarter persuaded many that the US economic recovery would remain lacklustre. The fundamentals look a lot better now, however, with credit constraints easing and the fiscal drag fading. Employment growth …
We don’t agree with Janet Yellen’s view that the recent rise in inflation is just noise. Instead, it is clear to us that a widespread strengthening in price pressures in areas as diverse as rents, medical care, clothing and new vehicles is underway. The …
23rd June 2014
Despite the contraction in first-quarter GDP, the falling unemployment rate and signs of a pick-up in inflation persuaded the Fed to stick to its existing plan and taper its asset purchases by a further $10bn, to $35bn per month. It still appears that the …
18th June 2014
The annual growth rate of our measure of M3*, which replicates the series discontinued by the Fed, accelerated to an 11-month high of 6.1% in May. This is entirely consistent with the recent rise in core inflation. … Monetary Indicators Monitor …
With core CPI inflation rising to 2.0% in May, from 1.8% in April, the Fed will have to acknowledge in tomorrow’s policy statement that price pressures are building. The chances that it will hike interest rates before the middle of next year are …
17th June 2014
May’s industrial production data are a timely reminder ahead of this week’s Fed policy meeting that activity is bouncing back after the disappointment of the first quarter. What’s more, the latest survey evidence suggests that production will continue to …
16th June 2014
GDP growth over the first half of this year could average less than 1% annualised. At the same time, however, labour market conditions have strengthened and price inflation appears to be picking up. Under those circumstances, we don't expect Fed officials …
The trivial decline in the University of Michigan's measure of consumer confidence to 81.2 in June, from 81.9, was mainly driven by steadily rising gasoline prices. Since most of the other key determinants of sentiment are improving, such as rising equity …
13th June 2014
Since the weak increase in retail sales in May is at odds with rising employment, easier access to credit and increasing household wealth, it probably won’t be long before sales start to rise more rapidly. … Retail Sales …
12th June 2014
While the Fed is unlikely to alter its tapering plans or the main message of its forward guidance at the FOMC meeting due to conclude on Wednesday 18th June, its new economic projections may prompt speculation that the first interest rate hike could come …
11th June 2014
With credit more freely available and the fiscal drag fading, we anticipate that the economic recovery is finally about to shift into a higher gear. As the weather-related distortion in the first quarter is unwound, we expect GDP growth to average 3% at …
10th June 2014
Recent trends in the small business sector highlight how an easing in credit constraints is oiling the wheels of growth and that a rise in both wage and price inflation may be lurking around the corner. … Small businesses warn about price …
The bulk of the necessary deleveraging process, especially in the private sector, appears to have been completed. This means that when the Fed starts to raise interest rates in the middle of next year, households and businesses are well placed to cope. …
9th June 2014
The robust 217,000 increase in non-farm payrolls in May is another illustration that the economy is back on the right track after the earlier weather-related weakness. … Employment Report …
6th June 2014
The monthly trade deficit widened to a two-year high of $47.2bn in April, from an upwardly revised $44.2bn in March. The 0.2% m/m decline in April's exports, coupled with the 1.2% m/m rise in imports, is not a great start to the second quarter. We still …
4th June 2014
A new measure of the availability of labour places another question mark over the Fed’s belief that there is much more slack in the labour market than the unemployment rate suggests. This supports our view that rising wage growth will eventually prompt …
3rd June 2014
They say that the third time is the charm. Let's hope so for the ISM's sake. The ISM has realised that not only did it make a crucial “software error” in its seasonal adjustments but, even once it had corrected that problem, the first correction it issued …
2nd June 2014
While we don't have a singular explanation for the downward trend in Treasury yields, we are still confident that yields will eventually rebound. We expect the 10-year Treasury yield to recover to 3.0% by end-2014 and continue climbing to 3.5% by …
The fall in weekly initial jobless claims to a seven-year low suggests payroll employment grew by around 230,000 in May. Although this may not prevent the unemployment rate from rebounding to 6.4%, from 6.3% in April, the downward trend remains intact. …
29th May 2014
The modest 0.8% m/m rise in durable goods orders in April was largely due to an unexpectedly strong surge in defence orders. Indeed, excluding defence, orders actually fell by 0.8% m/m, almost exactly matching the consensus forecast of a 0.7% decline. …
27th May 2014
The rebound in the Conference Board's measure of consumer confidence to 83.0 in May, from 81.7, is mainly a reflection of the improving labour market conditions, the upward trend in equity prices and the recent decline in households' borrowing costs. … …
Our view that core inflation will increase faster than the Fed expects is based on expectations that both rent of shelter and medical inflation will continue to rise and that an acceleration in wage growth will generate a more widespread pick up in price …
26th May 2014
There is now enough evidence to conclude that price pressures are strengthening. The increase in CPI inflation to 2.0% in April left it in line with the Fed’s target and core inflation rose to an eight-month high of 1.8%. Moreover, a widening in margins …
22nd May 2014
The recent upward revisions to our equity price forecasts imply that the boost to GDP growth this year from the wealth effect will be larger than we previously thought. This is one reason why, despite the stagnation in growth in the first quarter, we …
20th May 2014
The rise in the annual growth rate of our measure of the M3* money stock, to a nine month high of 5.8% in April from 5.5% in March, is consistent with the recent rebound in core CPI inflation to nearly 2% being sustained. … Monetary Indicators Monitor …
19th May 2014
We are unconcerned by the more mixed data for April since the upward trend in sales and production is still firmly in place. More generally, the improving survey evidence points to a pick-up in activity over the coming months and we still expect …
The fall in consumer confidence in May comes at the end of a week in which we also received weak retail sales and industrial production numbers. But we think that the underlying trend in economic activity is upwards, meaning that it shouldn’t be long …
16th May 2014
A widespread pick up in price pressures is now underway, which we think will result in both the CPI and PCE measures of core inflation rising above the Fed’s 2% target. Meanwhile, the fall in industrial production in April is a blip in the upward trend. …
15th May 2014
April’s retail sales release suggested that GDP growth in the first quarter was a bit stronger than previously thought, but that the rebound in the second quarter may turn out to be a little smaller than hoped. … Retail Sales (Apr …
13th May 2014
The rapid expansion in bank loans since the turn of the year is a sure sign that the economic outlook is brighter than the stagnation in first-quarter GDP growth suggested. Loans to businesses are increasing at the fastest pace, which bodes well for …
12th May 2014
A few commentators have suggested that the weakness in first-quarter GDP, which may even have contracted slightly, could be due to the Fed's decision late last year to begin tapering its monthly asset purchases. Admittedly, the timing fits, but otherwise …
6th May 2014
The modest decline in the trade deficit to $40.4bn in March, from $41.9bn, was a smaller narrowing than the BEA had assumed in its initial estimate of first-quarter GDP growth. Accordingly, when added to the downward revision we anticipate to …
The Fed's latest Senior Loan Officer Survey illustrates the remarkable divergence between bank loans to businesses, which have increased by nearly 9% over the past year, and bank residential mortgages, which have contracted by more than 4%. … Fed's survey …
5th May 2014
Even if China endured a financial crisis and a recession, the hit to the US economy would probably be fairly small. China is just not that important to America’s banks, businesses and investors. We are not expecting events in China to be anywhere near …
The above-consensus 288,000 increase in non-farm payrolls in April and the corresponding drop in the unemployment rate to a four-and-a-half-year low of 6.3% underline why the markets and the Fed were unconcerned by the near-stagnation in first-quarter GDP …
2nd May 2014
The further rise in the ISM manufacturing index to a four-month high of 54.9 in April, from 53.7, illustrates that the factory sector is still getting back to normal after the earlier weather-related disruptions. … ISM Manufacturing Index …
1st May 2014
As expected, the near-stagnation in first-quarter GDP growth wasn't enough to prevent the Fed from tapering its asset purchases by an additional $10bn, to $45bn per month, at the FOMC meeting that concluded today. … Fed continues with gradual QE …
30th April 2014
The unexpectedly weak 0.1% annualised gain in first-quarter GDP growth, which was markedly below the consensus forecast of a 1.2% gain, was principally due to the unusually severe winter weather. As the weather has returned to seasonal norms, we have …
The slight drop in the Conference Board's measure of consumer confidence, to 82.3 in April from 83.9, appears to have been due to weaker labour market conditions. As this decline was trivial and contrasts with other evidence, we still expect consumption …
29th April 2014
