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Let's talk about some economics. We're actually government back open. Economic data is flowing here, so let's get at it. Jennifer Lee, BMO Capital Market Senior Economist, joints us here, Jennifer, thanks so much for joining us here. What's kind of your setup for the economic call here for the US in twenty twenty six. How are you thinking about that?
Well, good morning, happy holidays to you both, and thank you very much for having me on. You know, so, I will say I'm a little bit more optimistic now that I was, you know, back in April during Liberation Day, given just that we have at least more certainty, a little bit more clarity on the Tarra front in terms of what the levels are. We're not talking about fifty percent anymore and anything like that. Whether or not the
legal they're legal is another story. But that sets up for a like at least a firmer I think, a start to the year.
We know what to expect.
But that's not to say that there are lots of landmines in store for US in twenty twenty six, and just a lot of them coming in January in particular.
It's interesting and I'd love your take, Jennifer on what data to look at look in between Christmas and New Year. It's pretty thin, but we have had a little dose of it us to some December Dallas fin Manufacturing Index fell to negative ten point nine today. The expectation had been for negative six and that's more about the manufacturing focus over there in Texas. But we're also seeing some of the pending home sales coming in much stronger than hand to been anticipated in a month or month basis,
we're up three point three percent. If you looked at that number that broke at ten am, what is the tell for you going into twenty twenty six? What are the key data points that you want to look at?
So I'll be looking at I think everybody else will be looking at anything that's related to jobs, anything that's related to inflation. Funny you mentioning the data because we finally finally got the Q three GDP numbers out of the Ust just was last week, right, yeah, four point three percent, which was like whoa blue mail away? And it wasn't just you know, exports, it wasn't just inventories, and I think that it.
Was pretty broad based very interesting.
Take example from the from the consumer side, a lot more spending on that side, not just on it was just pretty broad based as well, but a lot of non durables and also on services. So you know, we can't discount the consumer just yet. But same time, all that's a big look in the rear viewer mirror. That was all Q three and now we're looking at Q four and of course now as they're starting Q one in in like in just a few days, but we have to get through this period of still not clean data.
It still has to be scrubbed. I think we're going to be looking for a lot more revisions. You'll be interesting the first take, of course, and all the regional data and all that will make for a very interesting story. But I'm going to be more interested in the government data and what is going to happen after they revise them in the months ahead, to see what the real
story is going to be. But so far, you know, as of the first three quarters of the year, a very strong and very resilient US economy still and it's going to get messy because of the shutdown that we had.
In Q four. We're going to have that balance back in Q one.
But at the same time, we can't break out the you know, the bubbly jest s yep, because we could be talking about shutdown again in the next couple of weeks.
Sorry to say that.
Sorry, starting to put a damper inner all this, but yeah, that's the reality that's out there.
So talk to us about the consumer out there, Jennifer, how do you see the consumer? I know we've got that case shaped economy out there, so maybe we've got to you know, hem and hauled a little bit. But it seems like the consumer's doing okay. Is that what you're seeing so far?
Again, you know, we got the liliest data that we got was from the retail sales report. The core measure was very strong, sets up for a again a strong still a strong border for this consumer. But still, you know, we have to be careful because of the shutdown and all that. At the same time, I'm very wary of the confidence surveys that we've been seeing.
I mean, and they can.
Swing back and forth, but just particularly what we saw from the Conference Board survey that had dropped, you.
Know, considerably.
But you know, it wasn't about inflation because the inflation expectations component, I believe was quite steady, but it was all about jobs, and fewer people were saying that they found jobs plentiful. More people were saying that they are finding jobs hard to get. So that's something that we have to be very weary about because obviously, at the end of the day, it's having a job, having a steady income. That's going to be what It's the main driver for the consumer.
And the main driver for the FED. We're going to talk a lot more about the consumer after the next break, but talk to Jennifer a little bit about one of the key issues you think we should be tiptoeing around is who is going to lead the FED next and how they react.
To the data that they're give in to.
So it's going to be early January that we're going to be anticipating which Kevin it'll be.
Right which exactly we do know for sure that is going to be. His first name will be Kevin. The last name is to be decided, but you know it's going to be he will be having He will have a very difficult job finding his way through the data. You know, obviously then it will be very important, but also getting some sort of a majority within all the FED voters, because as we saw from the last FED vote, there are quite a few that are not so confident that they are ready to cut rates again or just yet.
You know, we are not looking for a January rate cut by any measure.
I don't think anyone is right now.
But you know, I think a couple more at the minimum rate cuts to come at a slower pace. You know, we're looking at March, September, March, June and September for the next rate cuts.
Three more to come.
Everything obviously will be taken on a meeting by meeting basis and will be very data dependent, but having that majority will be very critical.
Jennifer, just when it seems like the market may have put tariffs in the rear view mirror. Us MCA talks officially launched mid January. I mean, what's going to happen there? I mean, you've got a unique perspective up there in Canada. What's the expectation.
I think expectations, I'm going to say, I'm from my perspective, I think they're kind of low right now. Not sure exactly what's going to happen, whether or not we're going to actually have an actual us MCA per se or is it going to be a usc CM, a USM you know what I mean, some term a combination of that. But obviously there's going to be a lot of give
and take from all parties. It's just going to be how much you know, how much each party will be giving or taking will be will be critical, but it will definitely be a lot different, I.
Think, than than what we have right now.
Let's talk more global perspective now, because you've got some great takes on global central banks, not just what's happening in the FED. Back in Canada, well, twenty twenty four was a big year for rate cuts. In fact, one hundred mites so done in twenty twenty five. We now done until those trade talks are a washout.
So it sounds like the Bay Firm Governor Maclam basically sells like that they are done and that they're quite comfortable. The words were like that that they think that rates are about right where they are right now to get inflation back down to target. So you know, at at the bare minimum, sells like nothing is going to happen. But I think if there is a risk, the risk will be more cuts again, given how the U s
MCA fares. I mean, the US is our biggest by far trading partner out there, with about three quarters of our experts going to the US, over fifty percent of our airports coming from the US, so many businesses.
Are very dependent on sorry.
So at that point, because of that way, do you believe that how the how how the talks farewell depend will determine what happens with the Baker Canada, and of course with inflation and the economy.
How about what's your dollar call here? For twenty twenty six, the dollar has not bounced back like stocks have bounced back and other parts of the market to bounce back.
That has been one of the toughest calls I'll tell you, to make the calls of the US dollar. It's been, like the US economy, quite resilient. But you would imagine in theory in the world where almost all the central banks are basically finished easing policy, maybe one more to go, maybe a couple more ago, but in some of them are getting ready to start to tighten or continue tightening
in the case of the Bank of Japan. In that kind of environment, and then of course with a fed still on an easy bias, you would imagine that the US dollar would start to weaken, but it's sort of like how it's going to be all relative to everybody else in terms.
Of the economy.
If the US economy continues to remain resilient, which we still expect and we've got about two percent growth penciled in for twenty twenty six, that will actually help support the US dollars.
So even though we do look for the US dollar to weekend, it's going.
To be a slow, slow, softish weakening trend, not a big drop.
Jennifer Lee, and he needs to say the capital markets