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.



May 2020 Economy at a Glance

The U.S. is in a severe recession caused by the sudden shutdown due to the COVID-19 pandemic. Since the lock down began, the nation has lost 21.4 million jobs.

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7 Interest Rate Watch for more detail. In other news, retail sales data disappointed as higher prices factor into spending and industrial activity continued to recover but remains beset by supply issues.

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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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Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.

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The general outlook remains positive as households have accumulated over $2T in excess savings on their balance sheets and net worth has risen across all income groups.

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Employers continued to add jobs at a steady clip in October, demonstrating the labor market remains tight and the FOMC will continue to tighten policy.

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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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Housing starts jumped 5.8% during December. Single-family starts soared 12%, while multifamily starts dropped 13.6%.

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European activity is surging. Germany and Italy are leading the way, but France is close behind despite an ongoing rise in cases. The Google data are a bit outdated, but are hard to reconcile with today’s weak Eurozone services PMI figures.

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The Bureau of Labor Statistics reported this morning that nonfarm payrolls increased 528,000 for the month of July, easily topping estimates, lowering the unemployment rate to 3.5%.


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