- 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
Starts data are noisy, but a modest housing recovery is underway.
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
UAW strike impact fully reversed in December; manufacturing output ex-autos is still falling outright.
US
A solid end to 2023 means a positive carryover into Q1.
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
Startling, but not definitive.
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
- 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
Too soon to conclude that downward trend is in place.
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
