This Week's State Of The Economy - What Is Ahead? - 20 September 2019

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Sep 21, 2019

This Week's State Of The Economy - What Is Ahead? - 20 September 2019

U.S - Fed Cuts Again, But Dissent Rises

  • The Federal Reserve reduced the fed funds rate 25 bps this week, continuing to cite economic weakness overseas and muted inflation pressures.
  • The higher pace of home sales and improving builder confidence should feed through to stronger construction later this year, meaning residential investment should finally contribute positively to GDP growth.
  • Manufacturing production rebounded in August, but is still down over the past year.
  • The surge in oil prices should have fairly limited effect on the U.S. economy, while the spike in repo rates was largely due to technical factors.

 

Global - Central Banks in the Spotlight

  • Central banks were the focus this week, starting with Japan. The Bank of Japan made no major changes to its monetary policy at its September meeting, even as a majority of central banks have shifted to easing monetary policy.
  • Elsewhere, the Bank of England unanimously decided to keep policy rates on hold. In addition to holding rates steady, Bank of England policymakers highlighted how uncertainty surrounding Brexit could weigh on inflation expectations.
  • Bucking the trend of easier monetary policy, Norway's central bank caught markets off guard this week with its fourth interest rate increase within the last year.



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The real estate sector has been significantly affected by rising interest rates, with total housing starts falling 8.1% in September. Peering ahead, the forward-looking Leading Economic Index points to a recession in the coming year.

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The global mobility playing field is equalizing. Major European countries such as Germany and France have seen a slowdown in recent weeks, leaving them right in line with the United States relative to the January baseline.

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The out-of-consensus start to the year for economic data continued with a slip in retail sales and industrial production followed by a startling 14.8% drop in housing starts during January.

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Survey evidence flashed signs of contraction in the manufacturing sector and indicated weakness spreading to the services side of the economy, while employers added a less-than-expected 136K jobs in September.

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Increased vaccinations and an improving public health position led to an easing of restrictions and pickup in activity across the country in March.

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Relief in October inflation gives the FOMC the ability to slow the pace of rate hikes ahead. But make no mistake, the Fed\'s job of taming inflation remains far from over.

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Despite indications of lost momentum elsewhere, residential construction activity is picking up steam.

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The resiliency of the U.S. consumer was also on display, as total retail sales increased a stronger-than-expected 1.3% in October, boosted, in part, by a 1.3% jump in motor vehicles & parts and a 4.1% rise at gasoline stations.

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Markets were also pressured from the latest ISM manufacturing report, which signaled further deterioration in the sector with the index falling to its lowest level since 2009.

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e move into the Labor Day weekend celebrating the 235K jobs added in August, while simultaneously lamenting that it was about half a million jobs short of expectations.


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