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Muted PPI suggests core PCE inflation still on downward trend The March PPI data show the folly of relying too much on the CPI data. Our calculations suggest that, based on the combined inputs from PPI and CPI, core PCE prices increased by a more muted …
Fed looking to slow QT by half from June According to the minutes of the Fed’s mid-March policy meeting “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved …
10th April 2024
Third consecutive 0.4% m/m gain in core CPI kills June rate cut hopes Alongside the pick-up in monthly payroll employment gains, the third consecutive 0.4% m/m rise in core CPI in March pretty much kills off hopes of a June rate cut from the Fed. The …
Falling full-time employment not a sign of weakness The rise in part-time employment is not a sign of economic weakness, but instead reflects the large inflow of prime-age women into the labour force, who have been the big beneficiaries of the …
8th April 2024
Supercore inflation fundamentals still improving Inflation fundamentals improving This week brought more good news on the outlook for so-called supercore inflation. Core services (ex-housing) prices, aka supercore, are the most labour-sensitive component …
5th April 2024
Blockbuster report another reason for the Fed to take its time The blockbuster 303,000 increase in non-farm payrolls in March supports the Fed’s position that the resilience of the economy means it can take its time with rate cuts, which might now not …
The continued surge in the stock market that we forecast is likely to drive household net wealth to a record high as a share of incomes and provide a tailwind to consumption growth. But that shouldn’t stop the Fed from gradually lowering interest rates if …
4th April 2024
Exports and imports surge in first quarter The strong gains in exports and imports in February imply that net trade will be a negative for first-quarter GDP growth, but that appears to mostly reflect the support to import demand from strong consumer …
Plunge in prices paid index should soothe inflation concerns The renewed fall in the ISM services index in March is consistent with the message from the hard data that economic growth is slowing from the unsustainably strong pace in the second half of …
3rd April 2024
The February JOLTS data suggest that labour market conditions are now easing at a more gradual pace, but that isn’t a surprise when most indicators of slack have already returned to pre-pandemic norms. At 5.3% in February, the job openings rate has been …
2nd April 2024
Above 50.0 for the first time since September 2022 The jump in the ISM manufacturing index in March, leaving it above the theoretical 50.0 no-change level for the first time since September 2022, suggests that the sector has finally turned a corner. While …
1st April 2024
Core prices moderate again, but real spending strong The slightly weaker than expected gain in core PCE prices in February will, at the margin, provide Fed officials with a little more confidence that the January surge was an anomaly. Nevertheless, the …
29th March 2024
We expect non-farm payroll growth to ease to 180,000 in March. The jump in the unemployment rate in February is unlikely to be repeated, and is more likely to be partly reversed. We are sceptical that the recent reacceleration in non-farm payroll growth …
28th March 2024
Streets of Baltimore The collapse of the Francis Scott Key bridge, which was hit by an out-of-control container ship this week, could result in a lengthy disruption to the Baltimore port. Nevertheless, since that port is the 15 th largest in the country, …
Software increasingly driving productivity gains We still believe that the current productivity boom is mainly a cyclical phenomenon, as tight labour market conditions have forced firms to expand output by boosting the efficiency of their existing …
26th March 2024
Earlier weakness in equipment investment fading The solid rebound in durable goods orders in February suggests that the recent decline in corporate borrowing costs is feeding through to a tentative recovery in business equipment investment. The 1.4% m/m …
Faltering consumer spending reinforces our view that GDP growth will slow this year, although that slowdown is likely to be modest. After a disappointing couple of months for inflation, easing demand growth should help to drive a more marked decline later …
25th March 2024
The Fed wasn’t as hawkish as we had expected this week and, assuming the recent upturn in core inflation proves temporary, there is still a good chance that interest rate cuts will begin in June. Fed content with more gradual inflation fall Despite recent …
22nd March 2024
Overview – Although we expect GDP growth to slow to a below-potential pace over the next few quarters, we then anticipate a pick-up late this year, as monetary policy flips from a headwind to a tailwind. Our forecasts are based on the assumption of no …
21st March 2024
Despite upward revisions to the median projections for both GDP growth and core PCE inflation, the Fed’s median forecast for interest rates still shows a cumulative 75bp of policy loosening this year. In contrast, we continue to believe that …
20th March 2024
Fed officials still see rate cuts, despite higher core inflation projections Despite upward revisions to the median projections for both GDP growth and core PCE inflation, the median forecast for interest rates – released at the end of the Fed’s two-day …
Fed to stress caution amid inflation uncertainty We still expect the Fed to cut interest rates in June, although we don’t expect officials to provide a strong steer either for or against at next week’s FOMC meeting. The updated Summary of Economic …
15th March 2024
Consumer confidence edges down The small fall the University of Michigan measure of consumer sentiment in March is further evidence that the buoyant stock market alone will not prevent consumption growth from slowing. As the current conditions index was …
Unwinding of weather distortion boosts manufacturing In line with the rebound in retail sales, manufacturing output was boosted in February by the unwinding of the hit from the winter snowstorms that weighed on production in January. Even as that boost …
Weakness in control group sales suggests January fall wasn’t all due to weather The 0.6% m/m rebound in retail sales in February appears to reflect the unwinding of the drag on sales from the winter storms in early January, but the details suggest that …
14th March 2024
Recent data leave Fed still seeking “greater confidence” that inflation is heading to 2% New SEP likely to be marginally more hawkish We still expect first rate cut in June and 200bp of easing in total Data dependence will remain the order of the day at …
13th March 2024
Reshoring still more myth than reality Although it has been a priority for the last three administrations, the reshoring of lost manufacturing jobs remains more myth than reality. There has been a significant boom in the construction of hi-tech …
12th March 2024
Second hot core CPI print could put June rate cut at risk The second consecutive 0.4% m/m increase in core CPI in February leaves Fed officials some way from attaining the “greater confidence” needed to begin cutting interest rates. The annual rate of …
Fed Chair Jerome Powell’s congressional testimony struck a notably less hawkish tone than we have heard recently from some of his colleagues. And with the economic data this week providing little support for the idea of a renewed upturn in inflation, we …
8th March 2024
Labour market conditions easing despite employment strength The 275,000 rise in non-farm payrolls in February may, at face value, add weight to the Fed’s view that there is no rush to start cutting interest rates, but the downward revisions to previous …
Imports set for stronger gain in first quarter The January trade data point to a potentially larger drag on first-quarter GDP growth than we had assumed, albeit mainly because imports look to have been stronger than previously believed. In nominal terms …
7th March 2024
The January JOLTS release showed no evidence of a resurgence in labour demand. With forward looking indicators still pointing to a sharp easing in wage growth, there is little to suggest that the labour market will drive renewed inflationary pressures. …
6th March 2024
Powell content to wait for more data Fed Chair Jerome Powell looks set to stick to his previous script in his testimony to Congress today and, assuming we are right that the January strength in core inflation will prove to be a blip, his remarks do not …
Survey shows little signs of growth or inflation acceleration The fall in the ISM services index to 52.6 in February, from 53.4, left our weighted composite index consistent with a stagnation in GDP in the first quarter. That said, with the survey …
5th March 2024
Money growth remains weak but is rebounding steadily, with our broader M3 measure recovering to its strongest since mid-2022. But there is no reason to expect this to drive a rebound in inflation. Although M1 continues to decline, the pace of contraction …
4th March 2024
Following the more hawkish speeches from Fed Vice Chair Philip Jefferson and Governor Christopher Waller last week, that tone continued this week – with regional Fed Presidents including New York’s John Williams repeating the suggestion that interest rate …
1st March 2024
No evidence to support inflation rebound The unexpected fall in the ISM manufacturing index in February still leaves it on a gradual upward trend, but the more important news for the Fed is that there is still no sign that a material rebound in goods …
We expect the February employment report to show that, despite a strong 250,000 rise in non-farm payrolls, wage growth is still on a downward trend. The payrolls data show a dramatic acceleration in employment growth around the turn of the year, with …
29th February 2024
Resurgence in core prices a speed bump rather than pothole The surge in core PCE prices in January was largely as expected after the hot CPI and PPI reports. Although that surge has ruled out an early Fed rate cut, particularly in an environment where …
Drop in durable goods orders will not derail business investment The sharp drop in durable goods orders in January was mostly driven by volatile transport orders, with the fall in core orders much more moderate. The strengthening in underlying capital …
27th February 2024
Fed to delay first rate cut until June Fed to wait until June Based on comments from Fed officials this week, we now expect the Fed to wait until June to begin cutting interest rates. Moreover, when it does begin to loosen policy, we suspect that the Fed …
23rd February 2024
Minutes lean a little hawkish, but don’t rule out May rate cut The minutes of the Fed’s late January policy meeting included support for both hawks and doves although, somewhat disappointingly, there was no attempt to quantify what gaining “greater …
21st February 2024
The economy continues to appear impervious to higher interest rates and, although we expect growth to slow over the first half of this year, that slowdown is likely to be modest. But we don’t expect continued economic resilience to prevent inflation from …
PPI a kick in the teeth for inflation doves Mea Culpa The much stronger-than-expected 0.5% m/m increase in core PPI in January came as a hammer blow for PCE estimates, since the overshoot was mostly in the portfolio management and health care-related …
16th February 2024
Little change in confidence The surge in consumer confidence due to falling inflation expectations has stalled, with confidence little changed in February. However, with plenty of downward pressure on inflation in the pipeline, there is scope for …
Adverse weather hits manufacturing & mining, but boosts utilities Adding to the weaker news on retail sales, manufacturing output declined by 0.5% m/m in January although, as with the former, the unseasonably severe winter temperatures and snow storms in …
15th February 2024
Consumption growth finally faltering The 0.8% m/m fall in retail sales in January might partly reflect the unwinding of a previous weather-related distortion, but should temper recent suggestions of an economic resurgence. We continue to expect GDP growth …
The strong reaction to the January CPI data demonstrates that markets still don’t fully comprehend that the Fed is focused on the alternative PCE measure of inflation. While core CPI inflation was unchanged at 3.9% last month, we estimate that core PCE …
14th February 2024
Core CPI boosted by strange-looking acceleration in OER The unexpectedly-strong 0.4% m/m increase in core CPI prices in January will feed the “last mile is the hardest” narrative – with core CPI inflation unchanged at 3.9% – but, other than a very …
13th February 2024
Speculation will inevitably build that a Donald Trump victory in this year’s presidential election would be followed, once again, by large-scale tax cuts. With the Federal budget outlook in a far worse position than back in 2017, however, it’s notable …
12th February 2024
