Slowdown arrives, but US Fed stays inflation-fighting

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the holiday edition from Interest.co.nz.</p><p>Today we lead with news the US Fed seems to want ‘more evidence’ of easing inflation and it backs fresh rate hikes in 2023, unlike what markets have assumed.</p><p>But first we should note than American companies, from tech majors to consumer firms, are bracing for a potential economic downturn by shrinking their employee base to get ready for what they see coming. <a href="https://www.reuters.com/world/us/corporate-america-lays-off-thousands-recession-worries-mount-2023-01-04/" target="_blank"><strong>An updated list</strong></a> compiled by Reuters gives an indication of the scale involved; not massive, but significant.</p><p>On a same-store basis, <a href="https://www.redbookresearch.com/" target="_blank"><strong>American retail sales</strong></a> held up well last week, rising far more than inflation from year-ago levels (+10%).</p><p>US retailers used the holiday sales period to try to reduce inventories. <a href="https://www.the-lmi.com/december-2022-logistics-managers-index.html" target="_blank"><strong>That meant</strong></a> that warehouse pressures remained elevated but that transportation pressures eased sharply. We are unlikely to see a replenishment inventory build in Q1-2023.</p><p>The widely-watched <a href="https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/december/" target="_blank"><strong>local PMI</strong></a> showed their manufacturing sector contracted in December. It was a result broadly in line with the <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/fd49c3c51d79418b9622ad78993a762b" target="_blank"><strong>internationally-benchmarked factory PMI</strong></a> we noted yesterday. There is a broad pull-back underway in America's factories.</p><p>The <a href="https://tradingeconomics.com/united-states/job-offers" target=