Payroll growth looks to have slowed to about 250K in July, continuing the slowing trend.
The Q2 employment costs index should show that wage growth has softened markedly.
GDP growth likely will rebound in Q3, but final demand will be weak; that matters more to the Fed.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The surge in inflation is largely a margin story; costs have jumped too, but margins are the bigger factor.
- Absent structural change in markets, margins will mean-revert, pulling inflation down, but how quickly?
- The Empire State survey looks primed for a correction after the inexplicably strong April reading.
Ian Shepherdson (Chief Economist and Founder)U.S.
Retail and wholesale profit margins fell in April, in a sign of better inflation news ahead.
Progress will be uneven, but the ongoing inventory rebuild should push margins down over the next year.
Jobless claims seem to have stabilized at about 200K per week; nothing to worry about.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Markets are convinced the Fed will hike by 50bp on May 4, but it's not yet a done deal…
- Downside risks to payrolls, core CPI, GDP, and the ECI could yet persuade the Fed to tread cautiously.
- Would the Fed hike by 50bp if the economy shrank in Q1, and March payrolls were zero?
Ian Shepherdson (Chief Economist and Founder)U.S.
- Recessions are the process by which the private sec- tor unwinds financial imbalances...
- ...Absent financial imbalances, recessions happen only after large exogenous shocks.
- The U.S. private sector is in good financial shape, so near-term recession is unlikely.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The path of the military conflict in Ukraine is unknowable, but some economic consequences are clear…
- …The immediate hits to growth and inflation will be
bigger in Europe than in the U.S.
- In the long term, western defense spending has to
rise, massively; Europe has to pay for energy security
Ian Shepherdson (Chief Economist and Founder)U.S.
- The extreme uncertainty over developments in Ukraine make the macro implications unclear.
- A war would drive up energy prices, but Europe wouldn't freeze, given alternative supply sources.
- The permanent hit to relations with Russia would drive up spending on defense and energy security.
Ian Shepherdson (Chief Economist and Founder)U.S.
- An Omicron hit to airline fares and lodging costs sug- gests modest downside risk to January's core CPI.
- Reweighting will not materially change the path of core inflation; fundamentals are what matter.
- Vehicle prices are the most likely driver of downside inflation surprises in the spring and summer.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The ISM index likely dipped in January, but a big Omicron hit seems to have been averted.
- The construction recovery has been driven entirely by housing, but the story is changing…
- …Industrial and commercial construction is rebounding strongly, but housing activity is set to drop.
Ian Shepherdson (Chief Economist and Founder)U.S.
- We expect zero GDP growth in the first quarter, thanks to Omicron, but inflation will hit new highs.
- The Fed will hike, but 50bp would be a big stretch after back-to-back declines in payrolls.
- By the time growth rebounds in the second quarter, inflation will be falling sharply.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Rates will rise in March, but Powell suggests no bal- ance sheet run-off announcement until May...
- ...Even May is not certain, given the likelihood of a run of very weak activity data between now and then.
- Q4 GDP growth enjoyed a last-minute boost from surging December inventories, upside risk today.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The Fed is unlikely to announce any decisions on balance sheet run-off today;
- Rates still have to rise, with March the most likely date for lift-off, but the Fed can afford to wait for QT.
- Upside risk for December new home sales, after a run of undershoots compared to mortgage applications.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The enthusiasm among some FOMC members for a rapid balance sheet runoff is misplaced.
- If the FOMC wants to tighten more aggressively, faster rate hikes are less risky and send a clearer signal.
- We think the runoff will begin in the fall, slowly; market conditions will not allow the Fed to move quickly.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The preliminary Homebase data for December signal falling payrolls, even allowing for upward revisions.
- The Philly Fed index likely will follow the plunge in the Empire State, hit by the Omicron wave.
- Jobless claims likely rose for a third straight week, thanks to the seasonals, which will soon reverse.
Ian Shepherdson (Chief Economist and Founder)U.S.
