- December’s PPI and CPI data signal a mere 0.15% increase in the core PCE deflator...
- ...That would complete the second straight 2.0% annualized quarterly gain in the core PCE deflator.
- Look for a rebound in the January Empire State index, but these data are wild.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
Wait for the core PCE before rushing to inflation judgment
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Unsustainable gains in used auto prices, airline fares, and rents explain the solid December core CPI…
- …But core PCE matters much more to the Fed, and it likely rose by much less than the core CPI.
- Further downward pressure on core PPI inflation requires falling margins, and/or slower wage growth.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The core CPI likely rose by an unthreatening 0.2% in December, but the net risk is to the upside.
- Rents, airline fares, and used auto prices all pose threats to our forecast for the core.
- The big picture, though, is that core inflation is slowing across most core goods and services.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
Stock market-driven upturn in sentiment hides soft activity numbers
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- U.S. - Job Growth is Slowing, but the Fed’s Main Interest is Inflation
- EUROZONE- Rapidly Falling Inflation in Early Q1 Will Prompt an ECB Pivot in March
- U.K.- Households’ Saving Rate Won’t Rise Further in 2024; Spending to Recover
- CHINA+ - China’s Foreign Reserves Continue to Rise, as Yield Pressure Eases
- EM ASIA - Downward CPI Surprises in ASEAN, Paving the Way for H1 Rate Cuts
- LATAM - Growth Still Slowing, Helping to Bring Inflation Down Further
Ian Shepherdson (Chief Economist, Chairman and Founder)Global
- The topline spending deal means that fiscal policy will be a very modest tailwind for 2024 economic growth.
- The risk of government shutdowns has not gone entirely, but it is greatly diminished.
- Watch the NFIB details, not the headline, which is very sensitive to the stock market.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The surge in stock prices is lifting small business sentiment, but the hard activity numbers are weaker.
- Inventories look set to be a big drag on Q4 GDP growth, but the extent of the hit is very uncertain.
- November’s surge in revolving credit use could just be noise, but another big gain will signal distress.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
Behind the headline, the trend in job growth is slowing, with more softening to come.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The labor market is weaker than the headline December jobs numbers, but it’s hardly terrible.
- Either way, the Fed’s policy decisions will be driven more by the inflation numbers than the jobs data.
- The soft December ISM services survey is not definitive, but a repeat in January would get our attention.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Homebase signals December payroll growth of about 225K; no sign of further weakening yet.
- That said, a disproportionate share of this increase likely will come from healthcare and education jobs.
- The ISM services index likely ticked higher in December, but a steady softening in 2024 is a decent bet.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Jobless claims will be wild over the next few weeks; the underlying trend won’t emerge until mid-January.
- Leading indicators of claims are mixed, but claims are more likely to rise than fall over the next few months.
- The ADP is a deeply unreliable guide to the official payroll numbers; we recommend you ignore it.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- U.S. - Core PCE Inflation Likely will be Below 2% by End-2024
- EUROZONE- Rapidly Falling Inflation in Early Q1 Will Prompt an ECB Pivot in March
- U.K.- Forecast Review: CPI Inflation to Fall to 2% During Q2, Spurring Rate Cuts
- CHINA+ - China’s Property Sector is Barely Making Progress
- EM ASIA - What 2024 Has in Store, and Where We Could Be Widely Off Base
- LATAM - Milei Starts Working Hard; Chile Rejects the New Constitution
Ian Shepherdson (Chief Economist, Chairman and Founder)Global
- The December ISM manufacturing index likely fell, leaving it broadly in line with the cycle low…
- …But falling interest rates likely will lift capital spending and manufacturing activity in 2024.
- The Fed minutes are unlikely to reveal anything new, but we continue to expect rate cuts as early as March.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The November PCE report highlights the significant downside risk to the Fed’s inflation forecast.
- The Fed eventually will have little choice to ease by more than their current forecast of 75bp this year.
- Housing and manufacturing activity are near a floor, but any recovery will be slow going.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
WHEN DO THEY START, AND HOW FAST DO THEY GO?
- ...INFLATION IS BEATEN; RATES ARE A ONE-WAY RIDE
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- We think the core PCE deflator rose by only 0.11% in November; the trend is slowing sharply.
- Consumers’ spending is still rising, but the rate of growth is moderating after the Q3 jump.
- Aircraft and autos likely lifted November orders, but expect a soft core.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
Layoffs still very depressed, but people are finding it harder to secure new jobs.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
