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Despite the further decline in the unemployment rate to a five-year low of 7.2% in September, from 7.3%, the disappointing 148,000 increase in non-farm payrolls last month will reinforce market expectations that the Fed won't begin to taper its monthly …
22nd October 2013
The new budget conference committee has been written off as dead on arrival by most people before it even starts work. Given the dysfunctional state of Congress and the failure of the deficit reduction super-committee in 2011, that scepticism is …
21st October 2013
Even if Congress manages to keep the Federal government open and raise the debt ceiling next year, the continuing fiscal uncertainty is only going to make the Fed's job that much harder. That fiscal uncertainty comes in addition to the uncertainty …
18th October 2013
It will be some weeks yet before all of the economic data releases that were postponed during the government shutdown are published. As the shutdown will have severely delayed the collection process for this month, some of October’s reports may not come …
17th October 2013
Financial markets have been buoyed by media reports indicating that both the Senate and the House are preparing to vote imminently on a bill to reopen the Federal government and raise the debt ceiling. Once the initial euphoria has worn off, however, we …
16th October 2013
The Senate appears to be edging closer to a deal to reopen the Federal government and raise the debt ceiling. There is a risk that the Republican-controlled House will initially reject that agreement or at least try and make some minor amendments to it. …
15th October 2013
Despite the more promising tone of the recent discussions on Capitol Hill, there remains a risk that the debt ceiling will not be raised before Thursday. But a detailed look at the Treasury’s spending schedule shows that it should be able to meet all its …
It’s good news that Congress appears to be moving towards a deal to raise the debt ceiling, but the solution currently being discussed is far from perfect. The biggest problem is that the Republican proposal would not end the Federal government shutdown …
14th October 2013
The minutes from the contentious FOMC meeting last month reveal that despite the decision to delay the tapering of its asset purchases, which was described as a "relatively close call", "most" Fed officials still expected to begin the tapering before …
9th October 2013
Some of the less well-known private sector alternatives to the official statistical releases, which have been suspended for the duration of the Federal government shutdown, suggest that the economy performed well in September. But the more up-to-date …
September’s NFIB survey suggests that small businesses became more downbeat on the prospects for the economy ahead of the Federal government shutdown. The longer the shutdown continues, the more likely it is that actual sales will fall and credit …
8th October 2013
Congress appears to be no closer to resolving the now week-old government shutdown. Our best guess is that a comprehensive agreement will be reached sometime close to the 17th October debt ceiling deadline. President Obama isn't going to give ground on …
7th October 2013
The furloughing of 800,000 Federal employees, as part of the government shutdown that began today, will reduce spending by roughly $155 million per day. Over a whole year, the cost would be equivalent to about 0.3% of GDP, which is manageable. If the …
1st October 2013
The further increase in the ISM manufacturing index to a 29-month high of 56.2 in September, from 55.7, reflects the recent improvement in both domestic and overseas economic conditions. While this rise points to further acceleration in GDP growth in the …
The economic impact of the Federal shutdown that began today all depends on how long it drags on and, in particular, whether the acrimonious stand-off in Congress spills over into the negotiations to raise the debt ceiling. The current shutdown over the …
Even if Congress can reach an agreement to renew the Federal government's spending authority before it expires this Monday, which is looking increasingly unlikely, there is a much more serious battle brewing over the push to raise the debt ceiling before …
30th September 2013
The news of a modest 169,000 gain in non-farm payrolls in August, and the downward revision that cut July's gain to only 104,000, undoubtedly played a key role in the Fed's surprising decision to leave its monthly asset purchases unchanged. That weakness …
26th September 2013
The Federal Reserve's latest financial accounts show that households continued to deleverage in the second quarter, while the increase in public sector debt was the smallest since the financial crisis struck five years ago. The ratio of total domestic …
25th September 2013
The slightly better than expected 0.1% m/m rise in durable good orders in August is largely explained by an inexplicably small decline in commercial aircraft bookings. Otherwise, the modest rebounds in core capital goods (ex. aircraft) orders and …
The Fed's apparently isn't convinced yet, but the improvement evident in many of the key forward-looking indicators suggests that economic growth is accelerating. The surge in both the manufacturing and non-manufacturing ISM activity indices is very …
24th September 2013
The modest drop in the Conference Board's measure of consumer confidence to a four-month low of 79.7 in September, from 81.8, reflects a combination of higher interest rates and lower equity prices. That said, since the survey cut-off date, stock markets …
We were a little surprised by the Fed's conclusion last week that it wasn't ready to begin tapering its asset purchases. As we wrote in our Fed Watch ahead of the meeting, however, a tapering was "far from a certainty" because it was "questionable whether …
23rd September 2013
Congress is about to enter the critical stage of negotiations to extend the Federal government's spending authority, which will otherwise expire when the new fiscal year begins on 1st October, and, in addition, to raise the debt ceiling before the …
20th September 2013
The Fed's decision to maintain its asset purchases at $85bn per month was, given that most commentators expected a modest reduction in the pace today, unsurprisingly bond and equity positive. We wonder, however, whether the longer lasting reaction will be …
18th September 2013
The CBO's latest projections show that America’s long-term debt problem is slightly less daunting than it previously appeared to be. Nevertheless, at some point policymakers will still need to tackle the remaining problem head on by taking steps to …
17th September 2013
We doubt that the fall in CPI inflation in August will prevent the Fed from announcing a tapering of its asset purchases at the conclusion of its two-day policy meeting tomorrow. Indeed, the risk of a period of very low core inflation has passed. … …
The slight moderation in the annual growth rate of the broad monetary aggregates should help to ease fears that the Fed's quantitative easing is putting upward pressure on price inflation. The growth rate of our reconstructed M3 measure slowed to 5.6% in …
16th September 2013
American producers appear to be benefitting from a steady flow of orders from overseas linked to the recent upswing in demand in Asia and Europe. … Industrial Production (Aug.) & Empire State Index …
It should only be a matter of time before the recent fall in the number of people losing their job is followed by a rise in the number of people finding a job. Less firing and more hiring is obviously a healthy recipe for faster employment growth, which …
The decline in the University of Michigan's consumer confidence index to a five-month low of 76.8 in September, from 82.1, reflects the surge in interest rates and the drop in stock markets, although the latter has been partially reversed since the …
13th September 2013
August’s retail sales data weren’t as good as expected, but they still suggest that underlying consumption growth is accelerating. Although next week’s Fed decision will be a close call, we still think a small tapering of QE3 will be announced. … Retail …
Over the next two years, US exporters will continue to benefit from the recovery in overseas demand, particularly in the euro-zone. But the global economy is unlikely to be strong enough to generate real export growth of more than 5% a year. … US …
11th September 2013
The markets are obsessing about whether the Fed will begin to reduce its monthly asset purchases at the upcoming two-day FOMC meeting, which concludes next Wednesday (18th September). All things considered, we expect the Fed to announce a modest taper of …
10th September 2013
The proposed winding down of Fannie Mae and Freddie Mac, the government-owned mortgage finance companies, is normally framed in terms of protecting taxpayers from having to pick up the tab in the event of another housing collapse. Alternatively, however, …
9th September 2013
August's Employment Report is a mixed bag that can be used either to support an immediate tapering of the Fed's monthly asset purchases or to delay that move. Our best guess is that the cumulative evidence of improvement over the past year will convince a …
6th September 2013
As the current fiscal tightening fades and the external environment improves, we expect US GDP growth to accelerate from 1.5% this year to 2.5% in 2014 and 3.0%. Despite the recent rise in long-term interest rates, the housing recovery should continue, …
4th September 2013
The rebound in the monthly trade deficit to $39.1bn in July, from $34.5bn in June, is nothing to worry about. For a start, it didn't even fully reverse the unexpected decline in the deficit in June, from $43.7bn in May. The latest survey evidence points …
Another rise in the ISM manufacturing index to a 28-month high of 55.7 in August, after the surge to 55.4 in July, suggests that the improvement in overseas activity is benefiting US producers. This strengthens the case for the Fed to begin tapering QE3 …
3rd September 2013
Recent global and domestic developments are more likely to lead the Fed to taper QE3 by a relatively small amount at September’s policy meeting rather than prompt it to hold fire until October or December. … Global developments unlikely to influence Fed …
2nd September 2013
A rebound in employment growth and an unchanged unemployment rate should reinforce expectations that the Fed will begin tapering its monthly asset purchases in September. Our econometric model of non-farm payroll employment points to a monthly increase of …
29th August 2013
The much bigger than expected 7.3% m/m decline in July's durable goods orders dampens hopes of a pick-up in the growth rate of business investment in the third quarter. … Durable Goods …
26th August 2013
While it's far from a certainty, the minutes from the FOMC meeting in late July appear to support our view that the Fed will begin to slow its monthly asset purchases at the next meeting in mid-September. Nevertheless, with the FOMC still split on when to …
21st August 2013
A fall in new vehicle prices and a further improvement in the availability of auto loans, especially to households with lower credit scores, may soon trigger a more rapid rebound in vehicle sales. … Vehicle sales may soon shift into a higher …
20th August 2013
We expect GDP growth to accelerate over the next few quarters as the Federal fiscal tightening begins to ease although, at the same time, it looks like the economic recovery will receive less support from the rebounding housing sector. The growth rate of …
19th August 2013
The incoming news over the past couple of weeks suggests that the so-called twin deficits – the current account and Federal budget – are both improving, in the case of the Federal budget quite dramatically. … Threat from twin deficits begins to …
The drop in the University of Michigan's measure of consumer confidence to a four-month low of 80.0 in August, from 85.1, reversed only part of the sharp gains of the previous three months. Since most of the usual determinants of confidence didn't …
16th August 2013
After incorporating the revisions to the historical GDP figures, America's recent productivity performance looks even worse. The stagnation in productivity isn't going to have any major impact on Fed policy in the short-term but, if it continues, then Fed …
Despite the recession in Europe and the slowdown in economic growth in China, the US current account deficit has continued to narrow. Our calculations suggest that in the second quarter it hit a 15-month low of 2.4% of GDP, less than half the peak of 6.2% …
15th August 2013
The fading of the downward pressure on core inflation and the fall in initial jobless claims to a six-year low mean that the odds on the Fed beginning to taper QE3 next month have shortened further. … Consumer Prices & Industrial Production …
The Fed's continuing monthly asset purchases haven't prevented a further slowdown in the growth rate of the narrow M1 monetary aggregate, although our measure of the M3 aggregate suggests that broad money growth has remained largely unchanged at slightly …
14th August 2013
