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The surge in spending by state & local governments has boosted economic growth over the past year but, with tax revenues falling back in recent quarters, that boom is now set to fade. While there has been plenty of commentary on the support to the economy …
9th January 2024
Tougher times ahead for exporters Export volumes were little changed in November but the surveys suggest that tougher times lie ahead, with export orders seemingly falling fast in December. The trade surplus halved to $1.6bn in November as exports …
Falling imports and exports suggests demand softening at home and abroad The weakness of both exports and imports in November suggests that weaker growth overseas is now being matched by a softening in domestic demand too. The trade deficit shrank …
This page has been updated with additional analysis since first publication. RBA will look past Black Friday spending spree Although retail sales bounced back with a vengeance in November, that result largely reflected a one-off boost from Black Friday …
This page has been updated with additional analysis since first publication. Inflation will jump again before long Inflation excluding fresh food came close to the Bank of Japan’s 2% target in December, but it will jump to nearly 3% from February and …
8th January 2024
The recent sharp fall in Japan’s ratio of public debt to GDP reflects one-off factors that won’t be sustained. While the influence of rising bond yields on the trajectory of the public finances will largely be offset by higher inflation and nominal GDP …
The Fed-triggered financial market exuberance which ended 2023 hasn’t carried into the new year, with yields rising and equities struggling. Group Chief Economist Neil Shearing explains what’s changed – and what hasn’t – to explain this mood shift. He …
5th January 2024
In what was an extremely volatile year for the housing market, we made two key forecasting errors. Firstly, we didn’t anticipate the extent of the rise in mortgage rates. Because of that, we underestimated how tight supply in the existing housing market …
Fed still coy about QT end-game FOMC minutes put focus on inflation data The minutes of the mid-December FOMC meeting did not dissuade us that the Fed will start to cut interest rates from this March onwards. Admittedly, officials warned that “they would …
Conditions in the housing market seem to be improving, with the local real estate board data pointing to a big improvement in the home sales-to-new listing ratio in December. While the unseasonably warm weather may have played a role and house prices …
Weak ISMs should probably be taken with a pinch of salt The plunge in the ISM services index to a 7-month low in December suggests, at face value, that the economy is sliding into recession. But the poor relationship between the surveys and the hard …
There are still plenty of downside risks to our below-consensus forecast that the economy will stagnate in 2024 with GDP growth of 0.0%. (See here .) But the news over the past week has highlighted three upsides. First, the slide in 2-year and 5-year …
Employment gains still dominated by non-cyclical growth The slightly bigger-than-expected 216,000 gain in non-farm payrolls (consensus estimate was 170,000) in December coupled with a second consecutive 0.4% m/m gain in average hourly earnings means that …
This page has been updated with additional analysis since first publication. Jump in wage growth a concern for the Bank The unchanged level of employment in December is consistent with the message from the business surveys that labour demand has weakened …
Our forecast of earlier Bank Rate cuts means that mortgage rates will be significantly lower than we had anticipated this year, which will lead to a stronger recovery in demand from mortgaged buyers. With little reason to think that demand from cash …
This page has been updated with additional analysis since first publication. Construction PMIs still subdued in December The rise in the headline CIPS construction PMI from 45.5 in November to 46.8 in December was driven by the increase in the housing …
Lower mortgage rates see house prices jump in December The big 1.1% m/m increase in the Halifax house price index confirms that falls in mortgage rates are translating into renewed increases in house prices. Given further recent falls in mortgage rates, …
Manufacturers keep losing market share overseas Just as we predicted a few months ago, the outperformance of Japan’s stock market relative to US stocks has unwound as the yen has strengthened in recent weeks. (See Chart 1.) Chart 1: Yen/Dollar vs. …
A cooling economy will give the RBA cover Earlier this week, the Australian Financial Review published its quarterly survey of economists. By and large, the perception amongst forecasters seems to be that the RBA will retain its hawkish bias for the …
The redirecting of trade ships away from the Red Sea and the associated rise in shipping costs are unlikely to lead to a resurgence in global inflation. However, if the warfare underpinning the disruption to shipping escalates into a wider regional …
4th January 2024
The run of softer-than-expected news on CPI inflation and wage growth means we now expect the Bank of England to cut interest rates sooner than before. Our forecast is that rates will be cut from 5.25% in June and will fall to 3.00% in 2025. The markets …
Office-based jobs contractions focused in Midwest and West Coast Total employment growth in November across our 30 metros was weak compared with the rest of 2023, growing by 0.3% 3m/3m once seasonally-adjusted. On average, office-based jobs contracted for …
This page has been updated with additional analysis since first publication. Lower mortgage rates will ease the squeeze, but still some pain to come November’s money and credit data suggest that the recent falls in mortgage rates will stimulate new …
Strong November lending, but subdued investment volumes Net lending to commercial property increased for the ninth consecutive month in November, but that wasn’t reflected in investment volumes which dropped further. But throughout H1 2024 we expect …
Rise in mortgage approvals set to continue The rise in mortgage approvals in November was little surprise given the sharp drop back in mortgage rates since July. Given recent further falls in swap rates, mortgage rates are likely to continue to fall from …
Australian household finances are in better shape than the plunge in the household savings rate would suggest. While we still think that GDP growth will slow more sharply than expected over the coming quarters, there’s a clear risk that households will …
Minutes more nuanced than expected, given post-FOMC hawkish chatter The minutes of the mid-December FOMC meeting were slightly more dovish that we were expecting – more in line with the message delivered by Fed Chair Jerome Powell in his press conference …
3rd January 2024
While SVB’s collapse in March and sharper rises in interest rates led to larger-than-expected falls in commercial real estate (CRE) values, our expectations for sector and regional winners were broadly correct. A year ago, we outlined our key calls for …
JOLTS data point to slower wage growth The further decline in job openings to 8.79 million in November, from 8.85 million, was a bit gloomier than expected given that the JOLTS measure had previously dropped below the level implied by the both more timely …
This page has been updated with additional analysis since first publication. Modest rebound to end a dismal year Despite the modest rise in the ISM manufacturing index to 47.4 in December, from 46.7, the survey indicates that conditions in the factory …
It is no secret that strong immigration is pushing up rents but, as rent growth for new tenancies was little changed last year, this does not fully explain the surge in CPI rent inflation. The CPI measure is picking up unusually large rent increases on …
In a change to our previous forecast, we now think that the first interest rate cut from the Bank of England will happen in June this year rather than in November. We still think that interest rates will be reduced from 5.25% now to 3.00% in 2025. That’s …
Mortgage rates below 7% spur further recovery in mortgage demand Mortgage rates dropping below 7% were the catalyst for a marked uptick in mortgage applications for home purchase in December. The 7.1% m/m rise in mortgage applications for home purchase …
Will inflation continue its retreat into 2024? When will the Fed start easing policy, and by how much will it cut rates over the coming year? Our US team held an online briefing on the December CPI release and the outlook for inflation and Fed …
2nd January 2024
Although the manufacturing PMIs have overstated the weakness of industry for a while, the big picture from December’s surveys was that global industrial activity was barely growing at the end of 2023. The forward-looking indicators point to further …
We think more pain is in store for US commercial real estate as weak economic growth and high interest rates continue to take their toll. But which sectors and regions are most exposed, which will prove resilient, and when can investors expect recoveries …
We expect apartment markets to perform poorly over the next two years, with all our 17 metros seeing capital values lower at the end of 2025 than they are now. However, there will be substantial differentiation. At the top end, we think Houston apartment …
Employment growth reliant on non-cyclical sectors After the near 200,000 gain in payroll employment in November, which included the return of 47,000 workers who had been on strike, we expect a more muted 150,000 increase in December. We also anticipate a …
Housing market still set to cool Australia’s housing market showed signs of life in December. However, we still think an affordability crunch will temper house price gains in the months ahead. Allowing for seasonal swings, house prices across the eight …
Flat prices in December confirm 2023 resilience Unchanged house prices in December ensured that over the course of 2023 they fell by much less than forecasters had expected. With mortgage rates falling, it is increasingly likely that house prices avoid …
29th December 2023
We expect the sharpest fall in apartment completions in 2025-26 in Boston, Denver, NYC and Seattle. Those cities will also be joined by Sunbelt markets where oversupply is already denting rents, including Austin and San Antonio. By contrast, there is …
28th December 2023
Canada Chart Pack (Dec. 2023) …
While we got mortgage rates and lending roughly right in 2023, house prices fell by less than we expected as longer mortgage terms, strong demand from cash buyers, and tight supply came together to support them. There is little reason to think that these …
Industrial output has usually fallen rather sharply whenever firms were as pessimistic about the production outlook as they are now. That’s consistent with our view that GDP growth next year will be weaker than most anticipate. One thing that stood out …
This page has been updated with additional analysis since first publication. GDP will rebound this quarter While the November activity data were a mixed bag, they strongly suggest that the economy dodged a recession. Taking industrial production first, …
This page has been updated with additional analysis since first publication Labour market should tread water from next year The unemployment rate stayed unchanged in November, following consecutive falls in the previous two months. We think it should …
26th December 2023
Data this week showed that the population jumped by 430,000 in the third quarter alone, almost as much as the official full-year permanent resident target of 465,000. Nonetheless, the November CPI data showed a much-needed slowdown in rent inflation, …
22nd December 2023
This week saw a renewed attempt from some Fed officials to push back against market expectations for interest rate cuts but, with core PCE inflation running at an annualised pace of below 2% over the past six months, this final flurry of hawkishness isn’t …
