Han de Jong, Chief Economist of ABN AMRO, points out that in a recent interview Fed chair Powell said that interest sensitive sectors are softening.
Key Quotes
“He is right. US investment spending, for example, has grown strongly since early 2017, but growth is now slowing. Orders for non-defence capital goods, ex aircraft, were unchanged in October, but this followed drops of 0.5% and 0.2% in September and August, respectively. Shipments of capital goods, excluding defence and aircraft, rose 0.3%, but that was also after two monthly declines. The yoy growth rate amounted to a healthy 5.4%, but this was just below 10% earlier in the year.”
“The building sector is definitely interest-rate sensitive and it is also clearly softening. Building permits, for example, fell 0.6% mom in October and, more importantly, 6.0% yoy. Housing starts were up 1.5% mom in October but down 3.0% yoy. Finally, existing home sales were up 1.4% mom, but down 5.0% yoy.”
“The overall growth rate of the economy is still very healthy, but that is partly due to the fiscal stimulus provided by the Trump administration. That stimulus will fade in the course of 2019.”
“Add to the mix that the economy outside the US has weakened and the growth outlook for the US becomes unclear. It is right, I think, to wonder how much more the Fed will hike. The Fed’s September dot plot was saying five more times before the end of 2020, but that looks like an overshoot that would risk causing a recession.”
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