US macro scorecard - October

It was a comparatively strong month for US macro data, with the bulk of the most followed releases being both an improvement on the previous month’s and better than consensus projections, and indeed, the Citi surprises index for the US has been resolutely in positive territory. As such, our scorecard for the past month is largely green, with indicators still seeming to shrug off the more challenging environment around tighter monetary policy and the deteriorating global outlook. However, as Fed officials have warned, the risk of the cumulative lagged effect of the Fed’s rate hikes are rising, and the outlook for the next year is challenging.

The key mover for US markets over the past several months has been the ebb and flow around expectations of an imminent pivot from the Fed, with investors seizing on various data points to raise their bets that the run of extraordinarily rapid monetary tightening is set to come to an end – often in the face of vocal comments to the contrary from various Fed officials. Nevertheless, with the FOMC minutes released last week showing that ‘a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate’ we expect a slowdown in the pace of hiking, with a 50bps move the most likely scenario at the December meeting.

In this environment it was, somewhat counterintuitively, some of the weaker data points of the past month which were particularly welcomed by markets, with misses on initial jobless claims and the S&P Global manufacturing PMI survey prompting strong gains on the key equity indices. On the labour market front, initial jobless claims in the week to November 19 came in above expectations at 240,000 compared with 225,000. This was a three-month high for the measure and could be an indication that the Fed’s tightening measures are finally starting to have a tangible impact on the labour market. All eyes are now looking out for the next nonfarm payrolls report which is due at the end of this week. That release at the start of this month was another upside surprise for the measure although it should be noted that at 261,000, the volume of net gains was the lowest level since December 2020 and it was down significantly on the 315,000 recorded in September.

On the other side of the mandate, inflation slowed to 7.7% y/y in October, down from 8.2% the previous month and lower than the consensus prediction of 7.9%. Particularly encouraging for policymakers was that the core number was a major improvement, slowing to 6.3% y/y compared with 6.5% expected and the 6.6% recorded in September. Meanwhile, PPI inflation also slowed again in October, to 8.0%, indicating that inflation in the US could have peaked.

There was an upside surprise in housing market data this month, as new home sales came in at 632,000, far  higher than both consensus (570,000) and September’s print (588,000). The housing sector has been the key area where the rate hikes already implemented by the Fed have had a tangible impact this year prompting a marked slowdown in activity, making the October print especially unexpected. However, the uptick is unlikely to indicate a reversal of the trend given that rates continue to head higher and was rather driven by a temporary rebound in the south following hurricane-impeded activity the preceding month.