- Consumption is on track for another solid increase in Q1, but cashflow growth is slowing…
- Spending growth likely will moderate in the spring, but a serious weakening requires rising layoffs.
- Core inflation is slowing on all fronts; faster margin compression would intensify the downward pressure.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
Inflation matters more than the GDP overshoot, and it looks great.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The excellent Q4 inflation numbers are much more important than the overshoot in Q4 GDP growth.
- The core PCE deflator likely rose 0.2% in December, but 0.1% is much more likely than 0.3%.
- Pending home sales probably rebounded strongly in December, with further gains ahead.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- We see downside risks for Q4 GDP growth, but the uncertainties over inventories and trade are great.
- The core PCE deflator likely rose at a 2.0% annualized rate for the second straight quarter.
- December’s durable goods orders likely flattered by aircraft; new home sales probably rebounded.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Housing market activity looks primed for a rebound this year, but no return to Covid-boom levels.
- Residential construction will provide a small boost to overall growth, partly offsetting weakness elsewhere.
- The upturn in existing home prices requires more supply, which means prices will flatline, at best.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Risks to Thursday’s Q4 GDP print are mostly to the downside, but trade and inventories are wildcards.
- Solid consumption propelled final demand, offsetting sluggish business capex and flat housing spending.
- The core PCE deflator probably rose at a 2.0% annualized rate, for the second straight quarter.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- RESISTANCE IS CRUMBLING...
...THE FED WILL START EASING IN MARCH OR MAY
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The Fed is understandably cautious after the “transitory” mess, but its rate forecasts are too cautious.
- We expect the FOMC gradually to lower both its inflation and rate forecasts, starting in March.
- Soaring consumer sentiment, thanks to cheaper gas and rising stocks, signals continued solid spending.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The House likely will vote to prevent a government shutdown today, but no real progress on spending.
- Governor Waller doesn’t know how the CPI revisions will play out, they’re as likely to be good as bad.
- Existing home sales likely little changed in December, but consumers’ confidence is improving.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The December retail sales report was much stronger than expected, and revisions were minimal.
- We now think real consumption spending rose at a 2.6% annualized rate in the fourth quarter.
- The Fed would prefer softer numbers, but what really matters to policymakers is the inflation picture.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Both our Homebase-driven model and the NFIB survey signal about 225K payrolls in January.
- Plunging manufacturing hours worked signals down- side risk for December core retail sales.
- Manufacturing is still struggling; no sign yet of a meaningful improvement.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- 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
- 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
