OPEC Monthly Oil Market Report – October 2017
With regards to the
US monetary policy
, it seems the Fed may go ahead with its plans to gradually
normalise its monetary policy, given the ongoing momentum in the US economy. In a unanimous decision at
its September meeting, the Fed confirmed plans to reduce its balance sheet and, hence, monetary supply.
Additionally, the Fed left the target range for the federal funds rate unchanged at 1.0% to 1.25%, while
indicating that a hike in the key interest rate remains possible in December. The Fed highlighted that recently
inflation had dropped more than expected and consequently lowered its core inflation target from 1.7% to
1.5%. Despite this development, most board members expect to raise rates at the end of the year as the
decline in inflation was considered to be transitory. At the same time, the Fed will start the process of
unwinding its balance sheet by gradually decreasing the reinvestment of principal by $10 billion as outlined in
its June meeting. The decision was also a vote of confidence for the positive momentum in the US economy
as the Fed gave a broadly optimistic outlook on the current economic picture. At 2.4%, the estimate for
growth this year was somewhat stronger than June’s outlook of 2.2%, with negative impacts from the recent
hurricanes seen as temporary. While the Fed has highlighted that its future path is contingent on the
development in the domestic economy in general, the labour market inflation and potential spill-overs to the
global economy, the most recent comments seem to indicate that the Fed will pursue with its tightening cycle
as planned. Inflation stood at 1.9% y-o-y in August, again rising for a second consecutive month. Core
inflation, excluding volatile items as food and energy, remained at 1.7% y-o-y for the fourth consecutive
month, below the Fed’s inflation target of around 2%.
positive momentum continued but was clearly negatively impacted by the hurricane
season as non-farm payrolls fell by 33,000 in the latest August labour market report. It showed that jobs in
the leisure and hospitality industry fell last month, with employment falling by 111,000 as many workers were
off payrolls due to the hurricanes. Positively, the unemployment rate fell to 4.2% and average hourly
earnings growth for the private sector moved up to 2.9% y-o-y, the highest since the end of 2016. Long-term
unemployment numbers rose again to stand at 25.5% in September, after it had improved slightly to 24.7%
in August. Finally, the participation rate rose to 63.1%, comparing to 62.9% in August and in July.
also seems to have been impacted by the weather conditions in August as industrial
production decelerated to 1.5%, compared to a rise of 2.4% in July.
held up well in
August and was supported by retail sales growth numbers, which stood at 3.2% y-o-y, albeit slightly below
the July level of 3.5% y-o-y. The generally positive trend in domestic consumption was also visible in the
Conference Board’s Consumer Confidence Index, which stood at 119.8 in September, only slightly below the
already considerable level of 120.4 in August.
Purchasing Managers’ Index
the manufacturing sector, as provided by the
Institute of Supply Management (ISM), also
indicated ongoing support in the underlying
economy, with very strong numbers in both the
manufacturing and non-manufacturing sectors. The
manufacturing PMI increased to 60.8 in September,
compared to an already high level of 58.8 in August
and 56.3 in July. The important index for the
services sector, which constitutes more than 70%
of the US economy, rose to 59.8, after a level of
55.3 in August.
GDP growth forecast
for both 2017 remained
at 2.1%. While the 3Q17 growth may be negatively
impacted by the weather related effects, further
GDP growth may materialise via reconstruction
efforts after the hurricane season in the 4Q17. By
taking a slightly positive outcome of the US
Graph 3 - 2: Manufacturing and
non-manufacturing ISM indices
administration’s tax proposal into consideration, the 2018 GDP growth forecast was revised up to 2.3% from
2.2%. There is further room to the upside, depending on the outcome of the now ongoing budget and tax
related discussions in Congress.
ISM manufacturing index
ISM non-manufacturing index
Sources: Institute for Supply Management and Haver Analytics.