US macro scorecard - February

Daniel Richards - MENA Economist
Published Date: 29 March 2022


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

Chart Title

Source: Bloomberg, Emirates NBD Research

Although our US macro scorecard for shows that the economy remained in pretty good shape in February – most indicators both exceeded expectations and showed an improvement on the previous month – the outlook is deteriorating as inflationary pressures and ongoing supply chain issues continue to pose a threat to growth. The Bloomberg consensus forecast for real GDP growth this year has dipped only modestly over the past month, from 3.7% to 3.6%, but the Federal Reserve has made a much sharper downwards revision to its forecast, now projecting an expansion of just 2.8% compared to its previous expectation of 4.0% in December. With already high inflation set to be exacerbated over the next several months by the fallout from war in Ukraine and its impact on commodity prices, the effects on consumer demand may become more deleterious, while rising interest rates will also take their toll on the economy. The likelihood is that the first quarter will prove as good as it gets this year, and that activity is set to slow from here – indeed, some yield curve spreads are already indicating a possible recession ahead.

As it stood in February, there was already a marked slowdown in retail sales growth, which came in at 0.3% m/m, compared with the January expansion of 4.9%. While some of the slowdown is attributable to the sharp increase seen the previous month, it seems that the rapid acceleration in price growth also played a part – CPI inflation was 7.9% in February – and this will continue to exert downwards pressure on purchases in the coming months. Households still have excess saving on aggregate from the pandemic years, but with interest rates now rising also, consumers might prove more circumspect – while consumer confidence did tick up modestly in February, it remains low compared to long-run averages. We have already seen a slowdown in the housing market, with new home sales in February missing projections and falling for the second month in a row despite the highest level of inventories since 2008, although a structural shortage and a trend of building for the rental market has seen housing starts remain robust.

On the production side, the outlook was fairly good in February, in a sweet spot between fading pandemic pressures and the invasion of Ukraine by Russia. Industrial production slowed from the previous month, but that was largely anticipated given the reopening gains enjoyed in January, and the 0.5% expansion was in line with expectations. The latest ISM and S&P Global manufacturing surveys both showed a strongly positive 50.0-plus expansion in activity. By contrast, however, durable goods orders slipped in February for the first time in five months. Much of this was driven by the aerospace sector, but even stripping this out the core measure also declined, and with more aggressive rate rises to come businesses might find themselves more constrained than they had anticipated previously, with implications for growth ahead of the near term. Meanwhile, the latest lockdowns in China, where Shanghai is being closed down in two halves, illustrate that the supply chain issues still have the potential to flare up and hold back activity.

Finally, the US labour market remained in fine fettle in February, with another month where the headline net gain in in jobs far exceeded expectations. Initial jobless claims, meanwhile, have fallen to multi-year lows, and with another strong NFP reading expected for March, the FOMC certainly has sufficient leeway from the labour market to pursue its other twin mandate, curbing inflation, more aggressively. Jerome Powell has assured that a soft landing for the economy will be achieved and that the central bank can embark on its tightening cycle without seeing the jobless rate rise or tip the US economy into recession. Recent historical precedent suggests that this is far easier said than done, however, and what does appear certain is that activity will slow down at the very least.