US macro scorecard - January

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

Macro scorecard

Source: Bloomberg, Emirates NBD Research

The US economy continued to fire on all cylinders at the start of the year despite the headline-making challenges to the recovery, and our macro scorecard for the month shows far more green than red. The spread of the Omicron variant of Covid-19 which began at the close of 2021 saw the seven-day moving average of new cases rise to a record 800,000 in January, with an average of 651,000 recorded each day over the month, while mounting and increasingly entrenched price pressures saw CPI inflation rise to a four-decade high of 7.5% y/y.

Nevertheless, the Covid-19 impact on activity was far less severe than had been feared, indicating that the economy has become far more adept at dealing with any new variants of the virus. This was especially the case in the labour market, with the January NFP report surprising strongly to the upside with a net gain of 467,000 jobs, while the December figure was revised up from just short of 200,000 to 510,000. This was an unequivocally strong reading following months of sub-par headline prints from the report (although these had been partially offset by robust household surveys showing declining unemployment rates). As such, it paves the way for the Federal Reserve to start more aggressively tightening policy than had been anticipated previously, especially in the face of the more rapid price growth which has moved beyond the likes of just energy prices and used cars and is now materialising more forcefully in components such as shelter and food away from home.

This more rapid price growth is weighing on consumer sentiment but in the first month of the year at least its impact on spending was still limited. The University of Michigan consumer sentiment index has been near decade low levels in recent months, and while it picked up modestly to 67.2 in January, the February reading showed a renewed deterioration to 62.8 as household fears over a squeeze on the cost of living rose. Nevertheless, retail sales in January were far stronger than anticipated, climbing 3.8% m/m compared with expectations of just 2.0% growth and a -2.5% contraction in December (though some of this will be owing to faster than expected price growth). Despite concerns over rising prices, many households continue to benefit from the savings they raised through the successive lockdowns and restrictions on activity of the past two years.

How long this spending can remain resilient in the face of squeezed incomes and tighter monetary policy remains to be seen, and there are already indications in the housing market that the coming rate hikes are starting to take a toll. New home sales fell 4.5% m/m in January, likely impacted by mortgage rates that have risen to the highest level since 2019.

While we do not expect these inflationary pressures to dissipate in the next several months, the expectation remains that they will ease through the second half of the year, with some of the energy and transportation price rises unlikely to be repeated, even if there is greater upwards pressure from services. Indications are that some of the supply side issues that have held back industry are ameliorating, as industrial production surprised to the upside with 1.4% m/m growth, while durable goods orders climbed 1.6%, and diminished bottlenecks will also help curb price growth.