Uncertainty at its height.
The ISM manufacturing index fell to 50.3 in February (-0.6 pp). The new orders index (48.8, -6.5 pp) and the employment index (50.3, -2.7 pp) both deteriorated sharply. The prices paid index (62.4) hit its highest level since June 2022. By contrast, the ISM non-manufacturing index improved (53.5, +0.7 pp). Finally, the upward trend in sentiment among small businesses confirmed its end, with another fall to 100.7 in February (-4.4 pts on the December peak), indicating a sharp rise in uncertainty (104, +18 pts in two months, the second highest figure in history).
Households worried about a rebound in inflation.
ousehold sentiment deteriorated in February according to the Conference Board (98.3, -7.0 pts) and even more in March according to the University of Michigan (57.9, -6.8 pts), dragged down by worsening expectations (see chart). According to the University of Michigan survey, the jump in 1-year inflation expectations (+4.1%, +1.0 pp) was accompanied by a 30-year record for 5-year expectations (+3.5%, +0.3 pp).
Labour market: ambivalent signals.
Nonfarm payrolls growth continued, accelerating to +151k in February (+26k). Wage growth slowed to +0.3% m/m (-0.2 pp). However, the rise in the unemployment rate (4.1%, +0.1 pp) and the fall in the activity rate (62.4%, -0.2 pp) were disappointing.
Inflation is unlikely to prompt the Fed to cut rates.
CPI headline and core inflation fell in February (to +2.8% and +3.1%, respectively, both -0.2 pp). There has not been enough progress for the FOMC meeting on 18-19 March to implement a target rate cut, currently standing at +4.25% - +4.5%.
Growth: a significant downside risk.
While our growth forecast remains at +0.6% q/q in Q1, the risk of a sharp slowdown, or even a contraction, has turned clearer. In January, the fall in retail sales and personal spending created a downside risk for household consumption, which could stagnate. A negative contribution from foreign trade has been emerging quite clearly, with a sharp rise in imports of goods in January. The Atlanta Fed's GDPnow model accounts for these shocks by estimating a fall in GDP of -0.6% q/q.
Article completed on 14/03/2025
