While retail sales have slowed, the heat of the labor market has made it difficult for the Fed to raise interest rates.

In the latest report from Nomura Securities on Thursday, analysts pointed out that the current weak US retail sales data and a slowdown in the manufacturing index further confirm that the US economy is heading for recession.

At the same time, the still hot CPI data andThe falling number of first-time jobless claims reinforces the importance of rapid interest rate hikesBecause the market may have begun to experience deep-rooted high inflation.

As a result, Nomura's forecast for real US GDP in the third quarter of 2022 was revised down to 1.1 per cent from an annualised 1.5 per cent.

Analysts pointed out that in the case of economic slowdown, the Fed's mission and demand to tighten the financial environment has become more urgent, and the so-called "soft landing" to curb inflation without a recession may be fading away.

Core retail sales show slower consumption

Core retail sales are the basic input to personal consumption in GDP, and although US retail sales exceeded expectations in August, the core data showed signs of slowing.

Nomura estimates that real US core retail sales fell 0.6 per cent month-on-month after using a weighted combination of August CPI data to reduce nominal core retail sales.

Analysts say this may be partly due to the fact that the July data were driven by Amazon.Com Inc's Prime Day campaign. But even if online sales are excluded from the calculation, Nomura estimates that real core retail sales are down 0.3%.

Nomura Securities points out that this slowdown is a general trend in the consumer sector and is increasingly evident in business sentiment in the manufacturing sector.As the consumer sector cools and manufacturing slows, the signs of the coming recession seem to be getting stronger.

Analysts expectThe recession in the US economy will begin in the fourth quarter of 2022.

In the long run, the high level of core retail sales and the expansion of retailers' profit margins continue to put pressure on commodity inflation, pushing the Fed to raise interest rates to cool economic activity.

Strong labor market

The number of first-time jobless claims shows that the US labour market is recovering.

Despite the continued cooling trend in consumption and manufacturing activity, job market data released in the weeks of September 3 and September 10 continued to be strong. Initial jobless claims fell from 218000 to 213000 on Sept. 10; continued jobless claims fell again more than expected to 143000, compared with a consensus forecast of 147800.

Analysts point out that while the labour market is still one of the few strong sectors of the economy, strong labour demand is a driver of current high inflation.

Recent Fed speeches show that members are increasingly worried about the risk of a wage spiral, while the no longer strong number of jobless applicants suggestsThe hot labor market is driving the current wage rise.。

Nomura believes the Fed needs to cool the labour market before expected inflation falls meaningfully towards its target. As a result, continued unusually strong job market data have intensified the pressure on interest rate hikes.