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Signs of healthy growth going into the first quarter support our view that the Bank of Canada will probably wait until June to pivot to rate cuts. Signs of positive activity in the first quarter The latest January data has brought signs that growth could …
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 …
Multi-family starts slump to lowest level since 2020 Housing starts fell by the largest amount since April 2020 in January, led by a huge drop in multi-family starts. We suspect the multi-family sector will continue to be a drag on new development this …
It’s debatable whether the 0.1% q/q and 0.3% q/q contractions in real GDP in Q3 and Q4 2023 should be labelled as a recession given the falls were so small. While it satisfies the usual definition of a recession being two consecutive quarters of falling …
This page has been updated with additional analysis since first publication. Strong rebound suggests the retail recession will soon be over The 3.4% m/m rebound in retail sales volumes in January suggests the retail recession, and perhaps the economy …
Services inflation will slow sharply Australian labour market data published yesterday garnered considerable attention, largely because they showed that the unemployment rate overshot analyst expectations and jumped to a two-year high of 4.1%. However, we …
Japan’s economy is not in recession The preliminary estimate of Q4 GDP showed the second consecutive contraction in output, but we doubt it will scupper the BoJ’s plans to end negative interest rates. For a start, the quality of Japan’s preliminary GDP …
While we expect the office and multifamily sectors to account for the lion’s share of distressed assets over the next couple of years, there is an important distinction between the two. Unlike multifamily, we expect impacts on offices to be widespread, …
15th February 2024
We think that global growth will undershoot consensus expectations in 2024 as various props to growth from 2023 fade and as the lagged effects of past rate hikes continue to feed through. Among the advanced economies, the US will continue to outperform …
Although house prices continued to fall in January, lower mortgage rates are beginning to support affordability and stimulate home sales. With the sales-to-new listing ratio now pointing to positive house price inflation, we expect house prices to be …
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 …
Sales dragged down by vehicle plant shutdowns The 0.7% m/m decline in manufacturing sales values in December was actually a positive outcome, since the more downbeat export data had suggested that the fall would be far bigger than the 0.6% m/m provisional …
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 …
Non-labour input costs are now moderating which should soon result in a more rapid slowdown in consumer price inflation than most are anticipating. In a recent Bulletin article, the RBA argued that “large cost increases over recent years are still flowing …
This page has been updated with additional analysis since first publication. In the mildest of mild recessions, but recovery is in sight The news that the UK slipped into technical recession in 2023, will be a blow for the Prime Minister on a day when he …
This page has been updated with additional analysis since first publication Unemployment rate starts the year with a 4-handle The stronger-than-expected rise in unemployment in January may have been influenced by changes in seasonal employment patterns. …
This page has been updated with additional analysis since first publication. Continued contraction in GDP won’t prevent ending of negative interest rates While the second consecutive contraction in GDP in Q4 would suggest that Japan’s economy is now in …
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
With activity and inflation both softer than it had expected a few months ago, the RBNZ will likely stay put at its meeting at the end of the month. However, with a still-tight labour market fuelling uncertainty about domestically-sourced price pressures, …
We survey 12 major advanced economy housing markets to understand why house price falls have been small despite high starting points and sharp increases in mortgage rates. We then use this information to ascertain whether the correction in house prices is …
Soft surprise supports our view that inflation will fall below 2.0% in April By staying at 4.0% in January rather than rising as widely expected (BoE 4.1%, CE 4.1%, consensus 4.2%), January’s UK CPI inflation figures are better than expected and do not …
We will be discussing whether the next government will move the dial on the economy in a 20-minute online briefing at 3pm GMT on Wednesday 13th March. (Register here .) The next general election won’t be as pivotal for the economy or the markets as the …
13th 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 …
This page has been updated with additional analysis since first publication. Wage growth easing a bit slower While wage growth fell further in December, evidence that the labour market may not be loosening much suggests wage growth may not fall as fast as …
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
Strong January lending growth not a sign of recovery yet There was a surprisingly sharp increase in the amount of outstanding commercial real estate (CRE) debt held by commercial banks in January, which rose by $10.7bn, the largest monthly increase …
We’re trying a ‘quickfire round’ on this week’s episode of The Weekly Briefing from Capital Economics to get Group Chief Economist Neil Shearing answering the questions that clients have been asking most frequently in recent days: Could inflation rebound? …
9th February 2024
The strength of the labour market in January is another reason to think that the Bank of Canada can wait a little longer before it starts to cut interest rates. Bank’s latest communications give little away Governor Tiff Macklem gave little away in his …
Bond vigilante fiddle, as budget burns Budget on an unsustainable path The CBO released new budget projections this week showing the Federal deficit falling only slightly from 6.2% of GDP in fiscal year 2023, to 5.3% in 2024. The deficit is then expected …
A lot of data is being released next week and it might not be a good look for the UK economy. The release of January’s CPI inflation figures on Wednesday may reveal a second rise in as many months, from 4.0% in December to 4.1%. Within that, both core and …
Much ado about nothing The annual revision to the seasonal factors used to generate the seasonally adjusted CPI data turned out to be a damp squib, with the new factors almost identical to the old ones. Nevertheless, since some Fed officials were …
Wage pressures still too strong Although the sharp rise in employment in January may paint a healthier picture of the labour market than what is under the surface, the Bank of Canada will still be concerned about the renewed decline in the unemployment …
RBA’s hawkish bias will be put to the test While the RBA’s decision to leave rates on hold on Tuesday didn’t surprise anyone, the Bank’s Monetary Policy Statement did raise a few eyebrows. In contrast to a number of its developed-market counterparts, the …
Households will pinch pennies for a while yet Consumer spending is likely to remain subdued in the near term, helping to ease demand-side pressures on inflation. Experimental data published by the ABS show that household spending rose by 2.4% y/y in …
The recent fall in the homeownership rate revealed by the Housing Vacancy Survey (HVS) is unlikely to reverse given still-high mortgage costs. The survey also provided more evidence in support of our view that the homeowner market will remain tight this …
8th February 2024
The strength of payroll employment growth over the past two months is likely to be a blip rather than the start of a renewed acceleration and the wider evidence still points to a further slowdown in wage growth. Following the unexpected strength of …
The euro-zone will remain close to recession in the first half of the year as the effects of higher interest rates continue to weigh on household consumption and investment, and fiscal policy is tightened. Headline inflation will be close to the ECB’s 2% …
External demand strong, domestic demand weak The Q4 GDP data due next week are likely to show that the economy staged a partial rebound after the sharp contraction in Q3. But the details will probably confirm that domestic demand remained weak. Indeed, we …
The resurgence in productivity growth is mainly a cyclical response to the tightness of the labour market rather than a sign that the AI revolution is already bearing fruit. Nevertheless, that still implies scope for productivity growth to remain …
7th February 2024
Trade balance back in deficit Net trade appears to have contributed to the likely rebound in GDP last quarter but, with exports falling in December and the survey indicators of external demand still weak, that boost will probably go into reverse this …
Support to growth from surging exports set to fade A sharp rebound in real exports in December helps explain why net external trade supported GDP growth in the fourth quarter but, with the surveys indicating that external demand is weakening fairly …
The faster-than-expected fall in wage growth in November suggests the unexpected rebound in CPI inflation in December will be fleeting. We still think that by April CPI inflation will have fallen below the 2.0% target, and further declines in utility …
Mortgage demand continues to recover The average mortgage rate in January was unchanged from the month before, but that didn’t prevent mortgage applications for home purchase rising for a third consecutive month. And with interest rates set to resume …
This page has been updated with additional analysis since first publication. Industrial recession continues The seventh consecutive monthly fall in German industrial output in December confirms that industry remains a significant drag on growth. We expect …
This page has been updated with additional analysis since first publication. Rise in unemployment has further to run Although the unemployment rate last quarter came in below the RBNZ’s expectations, leading indicators continue to point to a rapid …
6th February 2024
What does the recent data flow and Jerome Powell’s pushback mean for the timing of the first Fed rate cut? How quickly and easily will core inflation get back to target? How far will the Fed go to cut rates this year? Chief US Economist Paul Ashworth and …
Although last week’s renewed underperformance of US regional banks and equity office REITs sparked fears of another mini banking crisis, a fairly steady decline in the option-adjusted spreads (OAS) of private label commercial mortgage backed securities …
Western metros again at risk from announced layoffs Although December’s average job growth rate of 0.3% 3m/3m across our 30 metros signalled a tepid end to 2023, it brings to a close a surprisingly solid year for total employment. The same can’t be said …
This page has been updated with additional analysis since first publication. Construction PMIs start 2024 in contractionary territory The rise in the headline CIPS construction PMI from 46.8 in December to 48.8 in January was driven by improvements in …
