US macro scorecard - August

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

US macro scorecard

Source: Bloomberg, Emirates NBD Research

The chances of the Federal Reserve successfully engineering a soft landing are looking increasingly strong, a viewpoint supported by our most recent macro scorecard for the US. While there are certainly signs of weakness within some of the data points, especially on the production side, there is nothing indicative of an economy near to collapse, while some of the hotter price and labour market indicators are cooling off but not at an unruly pace. The rising expectation of a soft landing appears to be shared by FOMC members, and at their meeting in September they revised up their growth forecast this year from 1.0% to 2.1%, while 2024 was revised up from 1.1% to 1.5%, saying that the economy was expanding at a ’solid pace’ compared with the wording of a ‘moderate pace’ in the previous meeting statement. When contrasted to the ECB’s recent growth downgrades for the Eurozone, it is clear that the US economy is outperforming this year.

The latest forecast revisions from the Fed also indicated that members expect one more 25bps rate hike this year and just 50bps worth of cuts next year, a more hawkish outlook than our own view that the present hiking cycle is now complete. Nevertheless, we do not expect rate cuts until the second half of next year. Inflation has been trending lower, but headline CPI’s uptick back to 3.7% y/y in August, from 3.2% in July, shows that there remain potential bumps in the road, not least as global oil prices have tracked higher in recent weeks to trade at levels last seen in November 2022.

On the other side of the Fed’s dual mandate, the labour market continues to show signs of softening, which will help ease upwards pressure on prices, without suggesting a comprehensive weakening in the economy. The NFP report for August showed a net gain of 187,000, which was larger than the consensus forecast of 170,000, but the readings for June and July were revised lower by a total 110,000, taking the three-month average to just under 150,000 per month. Meanwhile, the headline U-3 unemployment rate rose to 3.8%, although this was on the back of more job seekers returning to the market.

With employment still plentiful, the US consumer has remained fairly robust. Retail sales expanded 0.6% m/m in August, beating the 0.1% forecast and higher than the 0.5% rise seen in July. However, it is worth noting that it was higher petrol prices that drove the surge in spending, and retail sales were up by a weaker 0.2% m/m when stripping out cars and fuel. There was some evidence that the high interest rates are starting to take their toll on demand, with spending on interest-rate sensitive goods such as furniture down. Consumer sentiment also remains weak, with the University of Michigan survey deteriorating in September compared to August.

Finally, on the production side, the data has continued to come in below par, with both the S&P Global (47.0) and the ISM (47.6) manufacturing surveys below the neutral 50.0 level once again on the latest prints, albeit with a modest improvement in the ISM print compared to July. More positively, industrial production surprised to the upside in August as it rose 0.4% m/m. This beat expectations of 0.1% but was slower than the 0.7% seen in July.