US macro scorecard - September

Daniel Richards - MENA Economist
Published Date: 02 November 2021


A round-up of the most widely followed monthly macro data points from the US, compared to expectations and the previous month's results.

Source: Bloomberg, Emirates NBD Research

Data out of the US in September was comparatively strong, as can be seen from our macro scorecard above where nearly all of the most-followed US economic indicators beat both expectations and the previous month’s performance in the final month of Q3. The FOMC will have been parsing these indicators in the run-up to its rate-setting meeting later this week, where we expect they will judge that the economic recovery is in robust enough shape to press ahead with tapering of asset purchases.  While the NFP report for September was a second consecutive disappointing reading (a net gain of just 194,000, missing projections of half a million), we do not believe that it was sufficiently bad for the FOMC to divert from their plans, even despite the body’s vocal aim to pursue full employment as well as price stability, as the bar for tapering is much lower than the bar for raising rates is likely to be. With near-record job openings still in the US the misses by the NFP are being driven by a panoply of reasons, as discussed in our recent podcast, Discussing labour market frictions. As such, any delay by the Fed to tapering would likely have limited direct impact on the labour market right now in any case. Expectations are that the net gain in jobs for October (data due to be released on Friday) accelerated to 450,000.

Somewhat related to the persistent labour market issues, there has been a disparity in recent US data releases between the performance of demand indicators compared to those of output and production. Buttressed by the easing of the pandemic and ongoing monetary and fiscal support, consumer demand has been fairly robust. Retail sales expanded 0.7% m/m in September, and while this was a slowdown from the 0.9% recorded in August, it was nevertheless far stronger than the projected -0.2% contraction. New home sales hit 800,000 in September, up from 702,000 the previous month.

On the other hand, manufacturing indices have been constrained by the ongoing ships and chips issues, with shortages of available container vessels and semiconductors, alongside the aforementioned labour market constraints, continuing to weigh on the indicators. Industrial production declined -1.3% m/m in September, missing expectations for modest growth. While still quite high, the Markit manufacturing PMI in September missed both consensus and the previous month and it slipped once again in the October reading out earlier this week. Respondents continue to cite elevated levels of demand that they are unable to meet because of these ongoing supply chain issues, similar to durable goods orders data which showed unfilled orders have climbed to a record high.

These issues were a key factor behind the disappointing US GDP growth data for the third quarter. Q3 growth came in at just 2.0% q/q annualised in data released last week, missing projections of 2.6% and down from 6.7% in Q2. The automotive sector, which has been held back by chip shortages, was a particular constraint on growth. With the early October indicators suggesting that there has as yet been no improvement on this score, the stage is set for another quarter in which growth does not live up to its demand potential.

One issue not captured by our macro scorecard above is inflation, which is at the forefront of economic discussions these days and will likely be top of the FOMC’s agenda this week. CPI inflation in the US rose back up to 5.4% y/y in September, the fourth consecutive month it has held at 5.3-5.4%, giving rise to increased commentary that the phenomenon is not as transitory as was first maintained by the Federal Reserve. We hold to the view that price growth will moderate next year (see High inflation leaves Fed with few good options), but the longer this easing takes to materialise, the greater the impact it will start to have on the US economy should it potentially derail this strong demand story. The University of Michigan consumer sentiment index did rise from 70.3 in August to 72.8 in September, but it dipped again in October on the early reading and remains far off its historical averages, with respondents citing concerns about rapidly rising prices.