We have moved our probability for a US recession within the next 12 months up to about 25%; that is up from a 10-15% chance in December last year. But of course this still leaves us with a 75% chance that a recession can be avoided. Manufacturing has been hurt by the fall in crude, down 72% since June 2014, but has also been struggling with the strong dollar, up 22% according to the Bloomberg dollar spot index, since mid-2014.
So Super Thursday, the highly anticipated biggest UK monetary policy event of the year, wasn’t that super after all. As expected, the Monetary Policy Committee neither commenced its monetary tightening cycle, nor altered the GBP 375bn asset purchasing scheme, citing “greater persistence of low inflation” below 1% until the end of the year and the subsequent downward pressure on wage growth. The central bank did however revise its growth forecast to 2.2%, from 2.5%, with growth at 2.4% next year; not all bad though as the UK still remains one of the fastest growing developed economies.
The employment data continues to be one of the stronger data points on the US economy. Today’s non-farm payroll figure showed the US economy added 292,000 new jobs in December which was well ahead of market expectations of +200,000 jobs. The two month net revision of +50,000 jobs was also strong.
Following yesterday’s note we thought we would add a bit more flesh to the bones. There’s going to be a lot of second-guessing about the Fed’s next move if the data continues to run the way they have of late. Consumption and investment numbers have both dipped since officials pulled the trigger on 17 December last year. Yesterday we spoke about the ISM data with a December drop to 48.2, the lowest since June-2009. It was the second month in a row of sub-50 (contractionary) readings and it confirmed what the hard data have been showing for some time: the industrial sector is in a recession and it appears to be deepening. Manufacturing output hasn’t grown in three months and is up only 1% over the past year, and the broader industrial sector – which also includes mining and utilities – is much worse; with year-on-year (yoy) ‘growth’ of -1.2%.