- 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.
- 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.
- We see upside risk for third quarter GDP growth; net trade likely drove growth to 3.1%.
- Demand for labor is slowing, despite very low and stable initial jobless claims.
- September durable goods orders likely boosted by aircraft, but core capex looks solid too, for now.
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.
- Huge uncertainty over foreign trade and inventories mean Q3 GDP growth is still a wild card.
- We see substantial net upside risk, but other models point in the opposite direction.
- Homebuilders’ sentiment likely has not yet bottomed; mortgage demand is still falling.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The disappointing core CPI data for August mean the Fed will hike by 75bp, with 50bp likely in November...
- ..But the underlying forces which will drive down inflation over the next year are unchanged.
- Better news is coming, soon, depending on the pass- through from vehicle auction prices to the CPI.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Our 2023 base case is that inflation will surprise to the downside, but growth will surprise to the upside…
- …Under those conditions, the Fed will not be easing next year; continued gradual hikes are more likely.
- Rising r-star in the face of sustained economic growth is nothing for real assets to fear
Ian Shepherdson (Chief Economist and Founder)U.S.
- The Fed finally has started to talk about the impact of margins on inflation, after months of baffling silence.
- Vice-Chair Brainard says wider margins drove up inflation; a reversal could drive it back down.
- Jobless claims hit a three-month low; the feared summer surge in layoffs did not happen.
Ian Shepherdson (Chief Economist and Founder)U.S.
- CPI rent inflation has exploded, but the monthly run-rate likely has peaked.
- Landlords' rent expectations have moderated; tenants' ability to pay is more limited.
- Chair Powell will stick to the script today, again.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Consumers’ discretionary spending is reviving in the wake of the plunge in gas prices.
- The ISM and PMI services indexes are headed in opposite directions; one of them is wrong.
- The July trade data will confirm that the deficit is falling fast; trade will be a big plus for Q3 GDP growth.
Ian Shepherdson (Chief Economist and Founder)U.S.
- Job growth likely is slowing, but it is still too strong for the Fed, and wage gains are too fast too...
- Participation appears still to be rising, but it’s not yet high enough to cap wage growth.
- The services PMI points to downside risk for ISM services; housing is hurting both surveys.
Ian Shepherdson (Chief Economist and Founder)U.S.
- The ADP employment report returns today, with new methodology; forecasts are, therefore, a joke.
- The number of JOLTS job openings remains close to the peak, but are the data believable?
- Consumer confidence is rebounding as falling gas prices boost people’s spending power.
Ian Shepherdson (Chief Economist and Founder)U.S.
Ignore the increase in the Case-Shiller existing home price index today; it is out of date...
...Prices are falling as soaring supply meets plunging demand; a new equilibrium is some way off.
Consumers’ confidence is picking up as gas prices fall, but does it tell us anything about spending?
Ian Shepherdson (Chief Economist and Founder)U.S.
The August inflation data will have to be great if the Fed is to pivot to 50bp in September...
...Whatever happens to rates in the near-term, the Fed is uneasy at market forecasts of lower rates in 2023.
The plunging trade deficit and stronger consumption mean Q3 GDP forecasts are much too low.
Ian Shepherdson (Chief Economist and Founder)U.S.
Key regional surveys now show that supply conditions have improved enough to push down margins.
The upturn in jobless claims since the spring is overstated by seasonal problems; the labor market is fine.
Capital goods orders are rising at a decent, steady pace, but inflation is offsetting the gains, for now.
Ian Shepherdson (Chief Economist and Founder)U.S.
Chair Powell likely will reiterate that the Fed is now data-dependent; 75bp is not certain for September.
Student loan forgiveness will not materially boost growth or inflation, or threaten the public finances.
Imports appear to be falling quite quickly; a drop in the trade deficit will boost Q3 GDP growth.
Ian Shepherdson (Chief Economist and Founder)U.S.
