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- The supply chain nightmare is a consequence of a sudden change in initial conditions...
- ...In some systems, such changes trigger chaos; the outcomes appear wild, or random, but they aren't.
- Eventually, the system will respond; initial conditions will mean-revert; and supply chain chaos will end.
Core CPI inflation looks set to power past 5% by the year-end as used car prices and airline fares rebound.
The peak will come early next year, but the rate will remain elevated for most of the year.
If unit labor costs remain controlled, the "transitory" story is sustainable, but expect pressure on the Fed.
- Unit labor costs are key to the U.S. inflation story, but global factors matter too...
- ...If China is no longer a source of disinflation pressure, the Fed will have less room for labor cost maneuver.
- Ignore the decline in September housing construc- tion; it's much more noise than signal.
- Rising food service spending despite Covid Delta is a positive sign for fourth quarter consumption.
- We're assuming that the drop in cases continues, facilitating a sustained surge in spending.
- Soaring energy inflation will constrain the rate of in- crease of OER, but it will rise nonetheless.
- Retail sales growth likely slowed in September, but that's not necessarily bad news…
- …The decline in Covid cases likely pushed up spending on non-retail services, at the expense of goods.
- Consumers' sentiment likely has improved this month, but the surge in energy prices is a wild card.
- September's core CPI was flattered by unsustainable declines in airline fares, lodging and used car prices...
- ...But rents rose at the fastest pace in 15 years, so all eyes now will be on the October report.
- Stop Press: FOMC minutes confirm tapering to be announced at the November meeting.
- We expect a modest 0.2% increase in September's core CPI, but the net risk is to the upside.
- Used auto prices have rebounded at auction, and we're still waiting for rents to accelerate.
- The record quits rate in August signals that the Delta wave has not deterred job-switchers.
- September job gains fell short of the pace implied by Homebase, but October likely will be much better.
- Wage pressures continue to build, but labor supply should rebound strongly in Q4.
- Job openings likely hit yet another record high in August, but the Delta effect is uncertain.
- Higher energy prices will squeeze low-income house- holds, but won't kill the overall consumer recovery.
- ADP likely will report about 400K private jobs in Sep- tember; the official data should be a bit better.
- The rebound in mortgage applications continues; home sales will rise in Q4.
- Core capital goods orders are the best immediate proxy for business capex; strong growth continues.
- The rebound in mortgage applications and home sales continues after the H1 slump...
- Covid fear, lower rates, and easier lending standards are all helping to push up activity; more to come?
- The huge range of FOMC rate forecasts for 2023 and 2024 likely reflects widely differing labor market views.
- Both extremes seem unlikely to us, but it will be some time before the range of forecasts narrows.
- New home sales recently have been a bit stronger than mortgage data imply; upside August risk?
- The FOMC is on course to taper in November, provid- ed markets aren't in turmoil over the debt ceiling.
- The Fed's new economic forecasts are much more realistic, but FOMC opinions are spread widely.
- Chair Powell remains confident that inflation will be contained; upward forecast revisions are no big deal.
- The FOMC and Chair Powell appear prepared to signal that tapering will start in December.
- Expect more dots for a 2022 rate hike, but the median forecast likely will still be for the first move in 2023.
- Existing home sales are falling slowly, while inventory is rising; price gains are slowing.
- Faster growth in capex will boost productivity quickly, long before the capital stock is fully rebuilt.
- A re-run of the late 90s productivity boom is a high bar, but even a modest gain would make a difference.
- Homebuilders like the Delta-driven uptick in demand, but a return to the winter peak is not in the cards.
The macro case for tapering now is strong, but it ig- nores the wider, and more problematic, context.
We expect the Fed to signal that tapering likely will start in November, Delta/debt ceiling permitting.
Homebuilders are responding to weaker demand after the fading of the Covid-driven flight to the suburbs.
- Cross-currents in the core CPI suggest further volatility over the next few months…
- …But a repeat of the spring surge is unlikely, even as hotel room rates and airline fares rebound, post-Delta.
- The NFIB survey hints that small firms are responding to tight labor markets by increasing their capex
- The run of huge gains in the core CPI is over; the big- gest change is the end of the surge in used car prices.
- Hotel room rates and airline fares likely fell last month too, thanks to the Delta hit.
- The NFIB survey likely will be Delta-bruised too, but the labor market numbers are very strong.
- The current inflation spike can only become a spiral if unit labor costs accelerate..
- ...Faster productivity growth can prevent that, and the signs are that business capex is stepping up.
- Stronger productivity growth would prevent runaway inflation but lift r-star; the Fed would still have to hike.
The Covid Delta wave appears to have peaked; a steady decline in cases is a good bet.
Most states now appear to have immunity rates above 70%; that's enough to limit future waves.
The seasonals point to another drop in jobless claims today, but Delta is a wild card.
- Core PPI inflation likely hit a new high in August, but the month-to-month increases are set to slow.
- Much of the recent surge has been due to widening margins, especially in autos; this can't last forever.
- The drop in jobless claims reported yesterday is noise, not signal, and it says nothing about payrolls.