Labor cost inflation is slowing; further progress likely, depressing core services PCE inflation.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The Fed will stick to its position today that policy optionality is still required; inflation not yet beaten.
- ISM manufacturing has likely stalled; the modest uptick in the sector has run into the spike in rates.
- Auto sales probably rose marginally in October, but the overall trend is about flat.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The ECI is the Fed’s favored measure of labor cost pressures; expect more good news in the Q3 data...
- ...We see downside risk to the consensus, but other wages data don’t consistently signal ECI swings.
- Consumers’ confidence likely dipped this month, but lower gas prices should support a year-end uptick.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
Spending spike won't persist; core services inflation not yet beaten.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The spike in Q4 consumption is likely to prove a onetime phenomenon; real after-tax incomes are falling…
- …Sustained 4% consumption would require a steep drop in savings to a record low; possible but unlikely.
- Core PCE inflation is still falling; the September jump in core services prices will not be repeated.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
Headline obscures weak capex; Q4 GDP growth will be weaker
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The strong headline Q3 GDP number hid a disconcerting, broad-based slowing in business capex.
- The big inventory contribution to Q3 growth likely will reverse; we expect zero GDP growth in Q4.
- The September core PCE inflation data should bring further good news, but the Fed wants to see more.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Unemployment is creeping up, despite strong payroll gains, thanks to rapid labor force growth...
- Rebounding immigration likely is the key driver, rather than rising participation.
- Wage growth has already slowed sharply; it will soften further if unemployment continues to increase.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Surging consumption and a spike in net foreign trade likely propelled Q3 GDP to 4.9% growth…
- …But consumption will slow in Q4, the trade gain won’t be repeated, and inventories will be a big drag.
- A massive Boeing order from Ryanair means upside risk for headline durable orders; core still sluggish?
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Surging exports and a dip in imports mean that net trade will make a big contribution to Q3 GDP growth.
- Q4 will be different; imports are due to rebound and exports will be constrained by slow global growth.
- Netflix is raising prices sharply but it will have little impact on the CPI.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- SEPTEMBER’S PAYROLL SPIKE IS NOISE, NOT SIGNAL...
...AND CORE INFLATION PRESSURE CONTINUES TO FADE
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Slowing wage inflation and tightening financial conditions make it more likely that the Fed is done.
- Policymakers still want to retain optionality, given non-zero risks of adverse growth/inflation surprises...
- ...But a base case of an extended pause, followed by a victory declaration next spring, seems reasonable.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Consumption has surprised to the upside this year; the story is more than than just savings rundown.
- Spending also has been boosted by very rapid real income growth in H1, but the numbers have turned.
- Existing home sales reached a fresh cycle low in September, and will fall further in the fourth quarter.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Homebase signals only a 100K increase in private payrolls in October.
- Residential investment will boost Q3 GDP growth, following earlier gains in starts, but it won’t last.
- Used vehicle prices falling again at auction; the summer bump has reversed, despite the UAW strike.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Real consumption spending likely rose at a 4% annualized rate in Q3, as people ran down savings further.
- Manufacturing probably is past the trough, but the upturn so far has been extremely modest.
- Housing starts probably rebounded in September, but the trend is flattening as mortgage demand falls.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
Noisy but signalling stable manufacturing output; inflation pressures still fading
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Headline retail sales likely were unchanged in Sep- tember, but the control measure probably fell.
- Consumers’ spending likely ended Q3 on a soft note, with worse to come in Q4.
- A strike-related hit to auto production is the key risk to September manufacturing output.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Higher for longer reflects stronger trend growth, but the interest rate cycle has not been abolished…
- …The next substantial move in rates will be to the downside, and it will be faster than the Fed expects.
- Consumers are unhappy, but cheaper gasoline will cheer them up, provided stocks don’t tank.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
