- We expect a 0.23% rise in the core PCE deflator in April, but a rounded 0.3% print would be no great surprise.
- Real personal consumption probably rose by just 0.1%, given the drop in retail sales in April.
- Final domestic sales growth was strong in Q1, despite the low GDP headline, but that's about to change.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Q1 GDP growth will be revised down sharply today, thanks mostly to weaker consumption.
- Final sales still rose at a decent pace, but momentum is fading, and the labor market will reflect the downshift.
- Jobless claims probably are trending higher; look out for a hefty drop in pending home sales.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- State and local government investment spending has slowed sharply; soon it will fall outright…
- ...Both tax revenues and federal government payments to S&L are falling; cashflow is evaporating.
- The rebound in consumers' confidence likely will prove unsustainable if job growth weakens as we expect.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Methodological changes do not explain all the fall in the Michigan survey measure of consumers' confidence...
- ...Fewer people expect the Fed to ease soon, while layoff fears have grown; slower spending growth lies ahead.
- Equipment investment looks set for a weak second quarter, despite better-than-expected May orders.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Ignore the rise in the composite PMI in May it has been a poor guide to GDP growth since the pandemic...
- ...The failure of the employment index to reverse April's plunge adds to signs of slowing payroll growth.
- We look for a small rise in core capital goods shipments in April, due to a calendar quirk, not an improving trend.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- S&P's employment index has a poor long-term correlation with payrolls, but markets are paying attention now.
- Leading indicators leave us looking for an above-consensus 230K initial claims print today.
- "Various" FOMC members signalled willingness to hike in the minutes, but the data has moved on since then.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- We see existing home sales unchanged last month, but the outlook for the rest of Q2 is dim.
- The May rise in Manheim used car prices looks like a blip; sluggish sales will lead to a further margin squeeze.
- Fed minutes unlikely to change market perceptions about easing timing.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
PAYROLL GROWTH IS SET TO SLOW SHARPLY…
- …THE FED WILL RESPOND, BUT WHEN?
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Our Homebase model points to an initial estimate of a subpar 150K rise in private payrolls in May.
- The Redbook measure of year-over-year growth in retail sales has been remarkably strong lately...
- ...But it has often overstated the trend in the official retail sales data in the recent past; we think it is again.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The lagged effect of tight credit and high rates is starting to bite; we're cutting our 2024 and 2025 forecasts.
- The small business sector is under pressure, and consumers are starting to wobble.
- Sustained slow growth will push unemployment up and inflation down; yields will drop, and stocks will struggle.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The manufacturing sector continues to disappoint and a sustained recovery still looks some way off.
- April's pick-up in import prices likely will have a near-zero impact on core goods CPI inflation.
- The failure of housing starts and claims fully to reverse recent adverse shifts suggest interest rates are too high.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Underlying services inflation slowed in April; momentum in rents and auto insurance prices will fade.
- The CPI and PPI data suggest the core PCE deflator rose by 0.23%, the smallest increase since December.
- April's retail sales report supports the case for a slowdown in consumption growth.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- We are merely nudging up our forecast for the April core CPI to 0.37%, from 0.35%, following the PPI data.
- Short-term movements in many equivalent PPI and CPI components are weakly correlated.
- We also look today for a 0.4% rise in total retail sales, consistent with near-zero real consumption growth.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The consensus forecast for a 0.2% rise in the April core PPI is well-grounded, but big surprises are common.
- Tight credit is weighing heavily on small businesses; we expect another dip in the NFIB survey in April.
- NY Fed data suggest consumers are becoming more worried about job losses, pointing to higher layoffs.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- The birth/death model is likely to make smaller contributions to payroll growth across spring and summer.
- The wave of pandemic-inspired startups is yet to fade from the model, but the turning point is imminent.
- Consumers are becoming increasingly worried about the labor market; spending growth will slow.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Jobless claims likely will drop this week, but the sudden spike week is a warning sign of trouble ahead.
- Consumers’ confidence likely has peaked, but changes to the Michigan survey will overstate any softening.
- The new method likely will lift the survey's five-to-10-year inflation expectations measure, slightly.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- We see a sharp downturn in payrolls soon, despite the rock-bottom level of initial jobless claims.
- Claims tend to lead payrolls during an upturn, but deteriorate alongside payrolls during a downturn.
- Revisions to payrolls are uncorrelated with the initial response rate; April's weak initial print will survive.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- CPI health insurance prices are set to slow sharply from April, thanks to methodological changes.
- Prices should flatline from April to September, but the 1½% trend in the PCE measure will continue.
- MBS data on mortgage applications likely nudged up last week, but from a very low base.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- Banks are continuing to tighten credit availability for business and consumers.
- The real cost of bank loans to small businesses is approaching 8%; no wonder they are cutting costs.
- The lag between banks' willingness to extend consumer credit and lending flows is long; a slowdown lies ahead.
Ian Shepherdson (Chief Economist, Chairman and Founder)US
- April's slowdown in payrolls looks like real weakness; revisions likely will push the numbers down further.
- Near-zero growth in payrolls lies ahead if the NFIB survey retains its status as the best leading indicator.
- The ISM services survey has joined the growing list of surveys showing that labor demand is weakening.
Ian Shepherdson (Chief Economist, Chairman and Founder)US