- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
October 11, 2021
The Week Behind
Three stories drove the conversation about the economy last week as the first full week of the new quarter signaled the start to the end of the year. Congress continued its squabble over the debt ceiling and spending. Energy prices soared in Europe and Asia as shortages threaten near-term activity. Finally, the week ended with a huge jobs report that could have implications for Fed tapering. Throughout it all, the equity and bond market were looking shaky after sell-offs in late September. It seems that the world is trying to maintain a cautiously optimistic outlook as uncertainty intensifies.
The threat of a US federal default will continue to loom until December now. This week, the Senate passed legislation to fund the government through early December after Senator McConnell backed off of a hardline stance to raise the debt limit temporarily. The bill raises the limit by $480 billion, the amount that the Treasury estimates it would need to fund through December. The resolution calmed the markets for short-term Treasury bills. The 1-month bill opened the week above 10 basis points and closed the week around 2 basis points.
In reality, nothing seems to be solved here except that there is more time to work towards a bipartisan agreement. Wells Fargo believes the bill "simply moves the problem from October to December." However, there still seems to be a general sense of denial that any catastrophic could come from this. Moody's Analytics insists that "it is unimaginable that lawmakers would allow the US to breach the debt ceiling." The $3.5 trillion Build Back Better bill is another issue that divides the two parties, and a resolution there could help diffuse debt limit disagreements. However, no one should get their hopes up.
This summer has been all about supply chain disruptions, and what better way to start a new quarter than with an intensifying energy crisis. Fuel and power prices are rising as a result compounding previous issues with inflation. ING points out some supply factors to pay attention to including historically low levels of natural gas storage in Europe and Asia and supplier flows that are not increasing despite rising prices. Despite low storage levels, key OPEC suppliers to these regions are sticking with previously announced production increases in an announcement made on Oct 4th. Production for OPEC+ is set to be around 39.7 mil b/d with Russia included at 9.9 mil b/d. This will be a welcome 2.2 mil b/d hike over OPEC+ August production of 37.5 mil b/d (including Russia at 10.7 mil b/d).
The week was capped off with the last jobs report before the November FOMC meeting, and it did disappoint. The 194k jobs added in September was well below the 500k expected by a Bloomberg survey and the 720k expected by Dow Jones. The unemployment rate still saw a decent drop, down -0.4% to 4.8%, but remains -3.5% below its February 2020 level. Again, we saw another solid decline in permanent job losers, down -236k to 2.3 million, while temporary layoffs remained at 1.1 million for the 2nd straight month. The strongest job gains were in the professional and business services sector (+60k) and the leisure and hospitality sector (+74k), the sectors which also have the highest rates of job openings at 8.1% and 10.7%.
It's encouraging to see continued progress in these areas, and the Fed will undoubtedly use the fact the weakest sectors are still leading job gains as a point in the corner of "progress towards full employment." However, because gains are coming in those industries that are desperate for workers, wage growth has accelerated substantially to 4.6% YoY (the 3rd straight month above 4.0%). Cue further inflationary pressure, but not inflationary pressure that the Fed is likely to pay attention to. Instead, the FOMC committee might see that as a headwind for consumption growth in Q4. Overall, the report is probably not likely to have a major impact on the Fed's tapering decision. The hawkish tilt in the September meeting gives the impression that observing the September jobs report was just a formality.
Chart of the Week
The unemployment rate dropped -0.4% to 4.8% in September, reaching the Fed's forecast for end of year unemployment a whole quarter early. Does this satisfy the central bank's requirements for tapering?
The Week Ahead
Key reports this week come in the middle of the week: JOLTS on Tuesday, CPI on Wednesday, PPI on Thursday. These updates will provide further guidance on the US economic situation for the Fed. German CPI also comes out on Wednesday and will give a helpful look into inflation in Europe. Further developments in the energy markets will be key as well. Early monday Morning, Brent crude oil traded up 2.6% to just above $84.