Summary
United States: Expansion Not Yet Heading to the Gallows
- An increase in real retail sales by our estimates and a rebound in industrial production in July offered evidence beyond recent jobs data that the U.S. economy is not yet in a recession. That said, with new orders in the manufacturing sector slowing sharply and housing activity continuing to tumble, data this week did little to change our view that a downturn in the coming quarters will be hard to avoid.
- Next week: New Home Sales (Tue), Durable Goods (Wed), Personal Income & Spending (Fri)
International: Diverging Paths for Inflation in Canada and U.K.
- Headline inflation in Canada may be showing signs of cooling down. Overall CPI decelerated to a 7.6% year-over-year pace in July, driven by falling gasoline and energy prices. While inflation in Canada may have peaked in July, price pressures in the U.K. have not yet abated. Headline inflation surprised to the upside, reaching 10.1% year-over-year. We expect U.K. inflation to remain elevated for longer, as another sizable increase in electricity prices is planned for October.
- Next week: U.K. PMIs (Tue), Eurozone PMIs (Tue), South Africa CPI (Wed)
Interest Rate Watch: The Fed Still Has More Work to Do
- We continue to look for the Fed to hike the federal funds rate another 75 bps at its September 20-21 FOMC meeting and to follow that up with a 50 bps hike in early November and a 25 bps hike in December. After that, we believe the Fed will take a break and see how the rate hikes it has implemented so far affect the broader economy.
Topic of the Week: China’s Renewed Slowdown Prompts Surprise Rate Cut
- The combination of COVID containment policies and a struggling property sector has led us to revise our annual GDP forecast consistently lower over the course of this year, and as of now, we believe China’s economy will grow a little above 3%. We also believe risks are tilted toward even slower growth than we forecast, and July activity data released over the past few weeks reinforces that view.
