A very strong Q1 non-farm productivity report, partly flattered by a surprisingly soft unit labour costs number. Obviously, GDP growth has been strong, and with employment growth running at a consistent weight the implication is that productivity had to have accelerated. But there are some other distortions within the mix.
The US April manufacturing PMIs are all now in following today’s ISM release and the picture looks pretty bleak with a big slide from what had looked to be a healthier March release. There was a notable deteriorating in the orders side with export orders sub 50.0 for the first time since the 2015/16 China slowdown.
Another downside surprise for inflation. While the headline y/y rate moved up to 1.49%, core PCE was flat on the month which took the y/y rate back down to just 1.553%. That’s enough to round it up to 1.6% on the wires but it’s still the lowest print since Sep 2017.
Strong advance Q1 GDP numbers, but the devil is in the detail with a further big inventory build and a particularly strong contribution in net trade both driving up the q/q ann. growth rate to 3.2%, easily beating forecasts. The y/y rate also hit 3.2%, the highest since Q2 2015.
Solid set of numbers, the positive surprise easily outweighing mild downward revisions to the February data. Consumption should have been supported by tax refund cheques, which likely helped offset the drag from higher gasoline prices,
Soft industrial production number which reflects tepid manufacturing activity where growth is now running at its lowest rate is two years. This matches the deterioration we’ve seen on the orders side of the Federal Reserve bank surveys and fits with the upward pressure seen on the inventory side.
Outflows slowed in February amid a return of private overseas investors into the fixed income universe, which offset further selling in the equity space.
Based on how far the US term premium has fallen, to see any further meaningful decline in bond yields we’d need another downside macro shock.
In 1969 the US population was 125mn smaller. You also need to go back to 1969 to find a lower jobless claims number.
The slowdown in global growth has been accompanied by an inversion of the US yield curve — the one recession indicator that always enlivens markets. While statistically the curve is an excellent forecaster of downturns, there is much to suggest things might be a little different this time.
A stronger payrolls number, but after the disruptions of last month (weather knocking around 80k off the headline figure) the bounce could still have been a stronger. But enough to maintain sold employment growth, which continues to defy estimates that the labour market is tight...
Another disappointing report and while the yoy rate is still expanding (more robustly once ex-ing out the more volatile items) it seems clear that the 2017/18 mini-boom has exhausted itself. As far as shipments go, growth still looks better, but we’re still seeing inventories rising.
Price data basically confirms what we knew, inflation is back in a moderating phase with dip in core highlighting that. Income a little below expectations but the underlying wage story remains constructive, so nothing to be concerned about. Although in terms of Fed priorities the pick-up in wage growth is not enough to offset broader demand concerns.
Final US GDP numbers for Q4 revised down a little bit but not that much of a change in year-on-year terms, with growth overall running a shade below 3% which isn’t bad. Government was weak but investment still looks strong and inventory build also helped headline. In fact, investment looks too strong given how corporate profits have performed. Ditto for employment vs. profits.
Excess reserves have been falling at a far quicker pace than the overall contraction in Fed balance sheet (Fig1). This is perhaps a cleaner way of showing the same thing, using just Treasury securities which share more similar qualities in terms of value as capital (Fig2).
Manufacturing weakness persists, with strong energy output insufficient to offset broader downshift. Looking at Fed survey orders data we’re not yet at a point to bounce. So production side likely to remain an overall drag on economic activity over the remainder of the first quarter.
US January durable & capital goods orders and shipments & February PPI chart pack
US February consumer prices chart pack
US February non-farm payrolls report & wages chart pack
US Q4 productivity & labour costs chart pack