- A third straight benign core CPI print for December would complete the best streak in two years.
- Look out for falling vehicle prices and airline fares, and—perhaps—slower rent increases.
- Jobless claims likely stayed low last week, but rising layoff announcement signal trouble ahead.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Our base case remains that inflation will be van- quished without a recession...
- ...But the Fed’s determination to take zero inflation risk makes the balancing act much more difficult.
- Core inflation is now falling, but the Fed wants wage growth to moderate; leading indicators are favorable.
Ian Shepherdson (Chief Economist and Founder)U.S.
Consumption started the fourth quarter quite strongly; 3%-plus seems a decent bet.
Core PCE price pressures eased sequentially in October; further down shifts ahead?
Last week’s jump in the initial jobless claims likely was not a fluke; the trend probably is rising.
Ian Shepherdson (Chief Economist and Founder)U.S.
Strong looking October new home sales and durable goods orders data are misleading
Home sales and prices have further to fall and the trend in core capex orders has slowed markedly.
The upturn in jobless claims is a better guide to what’s really happening; the economy is softening.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Much of the sharp slowing in the October core CPI looks sustainable, including rents.
- The Fed is still most likely to hike by 50bp in December, but 25bp is possible…
- …All eyes on the November employment and CPI reports, both due before the December FOMC.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Falling used auto prices and a reversal in health insurance prices should constrain the October core CPI.
- We expect a 0.5% core increase, with a bit of downside risk, but rent is still a threat…
- …And the disparate components of the core-core are unpredictable; they have overshot in recent months.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Job growth is slowing, on track to slip below 100K by next March, pushing up unemployment.
- Wage growth appears to be softening, though the data are not quite definitive, yet.
- If recent trends continue, and core CPI prints moder- ate, Chair Powell’s stance will have to change.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The FOMC statement points to slower rate hikes, but Chair Powell seems unconvinced.
- Pursuing certainty of 2% or lower inflation implies aggressive further hikes; will the FOMC agree?
- …The best outcome would be that the data cooperate, facilitating a December switch to 50bp.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Chair Powell wants slower growth, better core inflation, and a looser labor market before the Fed pivots...
- ...Those criteria have not yet been met, despite better pipeline inflation, so expect no change in tone today.
- We now expect a 175K increase in October payrolls; a slowdown, but not a rollover.
Ian Shepherdson (Chief Economist and Founder)U.S.
- If core inflation and wage growth slow simultaneously, the Fed’s last hike will be in December
- Don’t be deceived by low and stable initial claims; labor demand is slowing markedly.
- The latest core CPI prints are grim, but recency bias is dangerous; change is coming, for the better
Ian Shepherdson (Chief Economist and Founder)U.S.
- Q3 GDP growth flattered to deceive; domestic final demand barely rose.
- The Q3 ECI should offer a bit of hope on the wages front, but the numbers are hard to forecast.
- One monthly drop in core capex orders proves nothing, but weaker business surveys are ominous.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The September core CPI likely was much less scary than in August, but the Fed wants a run of good data.
- Wildcards for September are vehicle prices, airline fares, and the components which spiked in August…
- …The range of plausible numbers is wide; it’s impossible to make monthly forecasts with confidence.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Core PPI inflation is falling rapidly, with both the goods and services components rolling over…
- The plunge in PPI services inflation is being driven by margins, which have a long, long, way to fall.
- Supply constraints mostly have gone, and many retailers now have far too much inventory.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Significantly higher unemployment might not be needed to depress wage growth...
- ...Plunging inflation expectations could do the job, by depressing wage demands.
- Manufacturing supply problems continue to ease, increasing the downward pressure on margin inflation.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The steady rundown in pandemic savings this year suggests people want to keep spending...
- ...Almost 90% of cumulative Covid savings remain, so they could easily support 2023 consumption.
- The spread between core PCE and core CPI inflation is set to widen, in the right direction for the Fed.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Businesses’ capex plans appear to be starting to rebound, but how much damage has been done?
- Cheaper gas likely is cheering consumers, and reducing their inflation expectations.
- New home sales probably fell again in August, and prices probably are falling, given very high inventory.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Even if margin re-compression crushes inflation over the next year, wages pose a medium-term threat...
- ...That’s why the Fed is so determined to drive a weakening in the labor market.
- But policymakers’s fears of sustained wage-driven inflation likely overstate the danger.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Aggressive rate hikes will continue until inflation improves; 75bp in November, but 25bp in December?
- Fed opinion is split, even in the near-term, and the inflation data over the next few months will be better.
- The Homebase data suggest a preliminary 325K forecast for September payrolls.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The Fed likely will hike by 75bp today, and will forecast a further 100bp by the end of the year...
- ...They will forecast slower growth, higher unemployment, and lower inflation for next year
- Existing home sales likely dipped only slightly in August, but further hefty declines are coming.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Housing construction is trending rapidly downwards, but starts likely were steady in August...temporarily.
- Inflation expectations are tracking the decline in food and energy inflation; that’s what matters for the Fed.
- Used vehicle prices fell sharply in the first half of September; the data will hit the CPI very soon.
Ian Shepherdson (Chief Economist and Founder)U.S.
