Filtered by Subscriptions: US Economics Use setting US Economics
Despite the explosion in Federal government debt, the US economy as a whole has been deleveraging since the financial crisis erupted in 2008. The reduction in debt by the household and financial sectors has more than offset the surge in public debt. …
27th September 2011
Even if another recession is avoided, the economic recovery is going to remain unusually lacklustre. It seems unlikely that a divided Congress will pass much of President Obama's $450bn stimulus plan. Fiscal policy will therefore soon add to the other …
23rd September 2011
Operation Twist is a go, albeit with a small twist on the twist. The Fed's announcement today that it will act to extend the average maturity of its Treasury holdings, by buying $400bn of securities that mature in more than six years and selling an equal …
22nd September 2011
The most recent acceleration in the annual growth rates of M1 and M2 has been dramatic, but the latest moves largely reflect a rise in the precautionary demand for money. The pick-up in the growth rate of our measure of M3 has been more modest because it …
21st September 2011
The marked rebound in the rate of core inflation since late last year is one of the key reasons why Fed officials are more wary of implementing further quantitative easing now. Some of the recent acceleration in core inflation has been due to temporary …
20th September 2011
The continued rise in inflation in August, which saw both headline and core CPI inflation hit two-year highs, is another reason to suspect that the Fed will shy away from a further round of full-blown quantitative easing for the time being. We do think …
16th September 2011
Given the weakness of the incoming economic data, the Fed is now almost certain to do something at next week's FOMC meeting, but exactly what is still not entirely clear. The proposal to lengthen the average duration of the Fed's asset holdings appears to …
15th September 2011
The stagnation in retail sales in August suggests that households became more cautious after the plunge in equity prices towards the start of the month. Sales may also have been dampened by Hurricane Irene. Nevertheless, real consumption in the third …
Recent developments have only reinforced our long-held belief that the economic recovery will remain unusually lacklustre for several more years. We now expect GDP growth of just 1.5% in 2012 and 2.0% in 2013. Only when the structural problems created by …
14th September 2011
Policymakers were back in the spotlight last week, with hopes growing that we could now see further monetary and fiscal stimulus. Unfortunately, we doubt that the Fed will have much success with what has been dubbed Operation Twist. Extending the average …
13th September 2011
President Obama's newly proposed $450bn job creation bill is equivalent to nearly 3% of GDP, so if it was passed by Congress as it stands it would certainly have a significant impact on GDP growth in 2012, which we currently expect to be only 2%. The big …
10th September 2011
The sharp decline in the trade deficit in July is one more reason to believe that annualised third-quarter GDP growth will come in around 2.5%. With global demand clearly weakening, however, the prospects of the external sector consistently and …
9th September 2011
On balance, we still think that the acceleration in core inflation will prevent the Fed from undertaking a third round of quantitative easing, even after the disappointing August payrolls figures. The related proposal to buy longer term securities at the …
6th September 2011
Even after allowing for the disruption of the strike by 45,000 Verizon workers last month, the stagnation in payroll employment is an ominous sign. The monthly gain in payrolls has now been below 100,000 for four consecutive months and the unemployment …
3rd September 2011
The marginal decline in the ISM manufacturing index to 50.6 in August, from 50.9, will further ease fears that the US economy is headed for a recession. At that level, the index is actually consistent with GDP growth of about 2%, which would represent an …
2nd September 2011
By the end of this year, it will be five years since the housing bubble burst. Given that the economy is likely to grow by no more than 2% this year, the US is only halfway through a lost decade. What’s more, the experience of Japan shows that persistent …
30th August 2011
In his speech at Jackson Hole, Chairman Ben Bernanke provided no real clues that the Fed is building up to more policy stimulus, such as QE3. In fact, he placed more onus on the politicians to help the economy by sorting out the fiscal situation. We think …
27th August 2011
There is a real danger that the recent economic slowdown and financial market turmoil resulted in non-farm payroll employment falling outright in August, perhaps by around 25,000. That would be the first decline since February 2010 and would spook both …
26th August 2011
In his speech at Jackson Hole on Friday, Fed Chairman Ben Bernanke is unlikely to fulfil the markets’ hopes that he will pave the way for a third round of asset purchases (QE3). And even if he did, QE3 is unlikely to boost the economy, equity prices or …
25th August 2011
July's durable goods orders data are not good as they might look. Nonetheless, they still suggest that business investment may accelerate in the third quarter. This supports our view that third-quarter GDP growth won't be a complete write-off. … Durable …
The economic slowdown appears to have developed into something more sustained and perhaps even more sinister. The recent plunge in equity prices, the possibility that jobs growth will flounder and a general deterioration in confidence could conspire to …
Much more important than whether or not the US economy contracts for one quarter or more is that a fundamental deficit in demand means there is little prospect of a significant and sustained acceleration in economic growth in the next year or two. The …
23rd August 2011
The plunge in the Philly Fed manufacturing index in August is not a sure-fire sign that a recession is imminent. The ISM index is more reliable. And even if the ISM index were to fall in line with the regional surveys in August, it would still not point …
20th August 2011
A further rise in core CPI inflation in the coming months will probably prevent the Fed from responding more aggressively to the economic slowdown and latest market turmoil with a third round of asset purchases (QE3), at least until early next year. … …
19th August 2011
The sharp acceleration in money growth in July is not a result of the Fed's loose monetary policies but instead has been driven by investors moving out of equities and/or Treasuries and into cash deposits. This is more deflationary than inflationary. … …
18th August 2011
The healthy 0.9% m/m increase in industrial production in July supports our view that GDP growth in the third quarter will rebound a bit as the adverse effects from the Japanese disaster unwind. But there is no escaping the fact that economic growth will …
17th August 2011
If the experiences of the Bank of Canada and Bank of Japan are anything to go by, the Fed's pledge to keep rates low "at least through mid-2013" supports our new forecast that 10 year Treasury yields will fall to 2% by year-end (compared with our previous …
16th August 2011
The rise in retail sales values in July supports our view that there will be at least some rebound in economic growth in the third quarter and that another recession will, in all likelihood, be avoided. The outlook further ahead, though, remains weak. … …
13th August 2011
The sharp widening in the trade deficit in June is a stark reminder that the US cannot rely on a sustained boost from overseas to offset the weak domestic economy. Indeed, today's data open the door to a small downward revision to the already paltry 1.3% …
12th August 2011
The Fed's pledge to keep interest rates exceptionally low for much longer than previously won't significantly boost the real economy. Admittedly, the chances of QE3 have risen. But the rebound in core inflation and the growing division at the Fed mean …
10th August 2011
While we think that the chances of another recession are relatively low, the risks are certainly rising. More generally, the recent run of weak economic data and the sharp falls in equity prices underline what we have thought all along; that this recovery …
9th August 2011
The news that S&P finally pulled the trigger by cutting America's long-term credit rating from AAA to AA+ will surely rock the financial markets when they open on Monday. But any spike in Treasury yields and/or fall in the dollar should be relatively …
6th August 2011
If the recent financial market moves are sustained, the net effect could be to reduce annualised GDP growth by around 0.5%. That would not tip the US into recession. But it supports our long-held view that this recovery would be tepid, and that the …
July's employment report will go some way to reducing fears that the economy is slipping into another recession. But it highlights that the labour market has hardly recovered at all from the recession and that the economy is not growing fast enough to …
As the recent slowdown in economic growth and the rebound in the unemployment rate have come at a time when core inflation has risen rapidly, the Fed is unlikely to announce a third round of asset purchases (QE3) after next Tuesday's policy meeting. But …
3rd August 2011
We now expect the US economy to grow by just 2% this year, down from our previous forecast of 2.5%. Growth in 2012 is unlikely to be any better. This downward revision has nothing to do with the deficit reduction package, as this is not large enough to …
July's ISM report was a shocker. The index is not flagging up another recession (at least not yet), but it suggests that the easing in GDP growth in the first half of the year is looking more and more like a sustained slowdown than a short-lived soft …
2nd August 2011
Even if the politicians finally get their act together and agree a deficit reduction package, the resulting spending cuts may not be large enough to appease the credit rating agencies. As such, we wouldn't be surprised to see America lose its AAA credit …
The latest noises from Washington suggest that politicians are close to reaching a compromise on a deal that will raise the debt ceiling ahead of Tuesday night, thereby preventing a debt default and a government shutdown. This might prompt a short-lived …
1st August 2011
The disappointing 1.3% annualised rise in GDP in the second quarter and the downward revision in the first quarter suggests that economic growth for 2011 as a whole may fall short of our 2.5% forecast. 2% is looking more plausible. What's more, with a …
30th July 2011
The fact that the recent slowdown in jobs growth is mostly due to a rise in firings, rather than a fall in hiring, suggests that a rapid rebound in non-farm payroll employment is not imminent. Our econometric model, which incorporates a range of labour …
29th July 2011
The fall in durable goods orders in June confirms that the US economy is still struggling. But the numbers do not alter our estimate that annualised GDP growth in the second quarter was 2.3%, slightly better than the consensus forecast of 1.7%. … Durable …
28th July 2011
The slight rebound in the Conference Board measure of consumer confidence, to 59.5 in July from 57.6 in June, is a bit bizarre given that all the other measures of confidence have recently fallen. Nonetheless, confidence remains at a level consistent with …
27th July 2011
We still think that the US government is unlikely to default on its debt. But if it did, the implications would potentially be far more serious than those that would follow a one or two notch downgrade of its credit rating from the current AAA. … What if …
26th July 2011
Our calculations suggest that GDP growth accelerated a little to 2.3% annualised in the second quarter, from 1.9% in the first, despite the fact that consumption growth apparently slowed to less than 1%. The near-stagnation in real consumption is mostly …
A downgrade of US government debt would not necessarily be disastrous for Treasuries or the dollar, at least once the dust settled. However, it would be the starkest warning yet that the fall-out from the global financial crisis will still be felt for …
23rd July 2011
An agreement to raise the debt ceiling still appears to be some way off, but not for lack of trying. Every day seems to bring a new deficit reduction plan. With the clock ticking, we doubt there is time to reach agreement on a comprehensive plan. Instead, …
21st July 2011
Despite a marked slowdown in consumption growth to less than 1% annualised, it appears that overall GDP growth may actually have picked up a little to 2.3% in the second quarter, from 1.9% in the first. Previously we thought that growth would be about …
20th July 2011
The annual growth rate of our own Capital Economics measure of the M3 aggregate hit a two-year high of 4.9% in June, while the growth rates of both M1 and M2 continued to rise as well. … Monetary Indicators Monitor …
19th July 2011
The risk that the US government will default on some of its debt obligations lingered last week as the stand-off over the raising of the debt ceiling appeared to intensify. At the same time, it has become more likely that at some point the US might have …
