MacroScope

Key to UK interest rate hike, pay data, still a muddle

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Bank of England rate setters meeting this week should be in cordial agreement that Britain’s economy is growing at a decent pace, and that price pressures look mostly in check at the moment.

But when it comes to gauging how quickly slack in the labour market is disappearing – a key question deciding when they should raise interest rates – the surveys look a lot less joined-up.

Two reports on Tuesday were far apart on the issue and underscore just how tough it is to get a grip on one a threat in any economy to future inflation – the pass-through effects from higher wage deals, which tend to feed upon each other.

One from the Recruitment and Employment Confederation and KPMG showed British firms upped salary offers for new permanent staff at the fastest rate in almost 17 years as the pool of suitable candidates dwindles rapidly.

And the availability of permanent staff fell at the fastest rate since the survey started in 1997, with demand rising for both temporary and permanent staff.

U.S. May non-farm payrolls may be a calmer affair after April shock

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The May U.S. non-farm payroll report on Friday may be a much less volatile affair than last month, when shock news of 288,000 new jobs topped even the most optimistic views.

This time, there is more certainty around a less spectacular but still solid outcome, based on an analysis of forecasts from the most accurate economists in Reuters polls on recent U.S. data.

The range of views among economists who were closest to reality in forecasting recent key releases on jobs, manufacturing activity, and the magnitude of the contraction in first quarter U.S. GDP is significantly narrower than the range in the wider Reuters poll.

Most accurate U.S. growth forecasters say to brace for stronger data this week

Arrows shot by Olympic hopeful and member of the U.S. archery team Gibilaro are seen in the target in BranfordThe two forecasting teams that came closest to predicting the U.S. economy would nearly stall in the first quarter expect other key economic data due this week to be strong.

This gives some support to the view — which some say is more hope than a forecast — that a snap-back is already taking place as the Federal Reserve and most other analysts expect.

UBS and First Trust Advisors both forecast the world’s largest economy grew by a meager 0.5 percent on an annualized basis during the first three months of the year.

Deconstructing UK job numbers

On the face of it, the good news for the British government keeps on coming. Britain’s economy grew surprisingly fast last year and inflation fell below the Bank of England’s target for the first time in over four years in January. The government this month even got a nod from the International Monetary Fund which only last year criticized its austerity programme.

The latest confidence boost came from jobless figures on Wednesday. Not only did the unemployment rate fall to a five-year low of 6.9 percent but pay growth caught up with  inflation for the first time in nearly four years. That provides Prime Minister David Cameron’s government with another lift ahead of the 2015 elections, after it has come  under fire from the Labour opposition for overseeing a fall in living standards.

But a closer look at the data suggests a more nuanced picture.

Indeed, total pay growth in February reached 1.7 percent – matching the 1.7 percent rise in consumer prices in February and above their 1.6 percent increase in March.

Weather to make February jobs report a crap-shoot too

Blaming bad economic news on winter is getting as tiresome as tales of snarled traffic, flight cancellations and trips out with the snow shovel in freezing winds.

The February jobs report will be no exception to this U.S. season of climactic howling.

Most of the 97 forecasters who contribute to the Reuters Poll on non-farm payrolls have stuck to their forecasts, resisting the temptation to make last-minute changes based on even more disappointing data this week.

Why UK rates are well below “normal” in one labour market chart

Much ink has been spilled over the past several months over when the Bank of England will eventually raise interest rates from a record low of 0.5 percent, and if they’ll do it before the Federal Reserve does. The pound is trading near a five-year high against a basket of currencies as a result.

BoE Governor Mark Carney and other Monetary Policy Committee members have tried to remind the public and businesses at every chance they are given that a rate rise is still a way off – likely at least a year – and that when it’s time for the central bank to lift rates, it will do so gradually.

Much of the focus until the BoE’s February Inflation Report, published last week, was on the jobless rate and how quickly it has fallen. The latest data show a slight rise to 7.2 percent, so a bit above the 7 percent rate the BoE said it would have to fall below to trigger discussions on rate rises.

Pinning down the January effect on U.S. jobs figures

With Wall Street grappling to hold on to its record highs, a lot is riding on good news from the U.S. economy, no matter how high the Federal Reserve has set the bar for backing off its clear plan to end its monetary stimulus program this year.

After two huge upsets in a row on the important U.S. economic data releases since Christmas — December non-farm payrolls and the January ISM manufacturing report, forecasters are lining up again for an improvement in hiring.

The latest consensus from Reuters Polls is for a rebound to 185,000 after net hiring collapsed to just 74,000 the month before.

High unemployment putting the ECB in isolation

 

Unemployment in the euro zone is stuck at 12 percent, an already high rate that masks eye-popping rates in many of its struggling member economies.

But in a press conference lasting one hour, European Central Bank President Mario Draghi mentioned the problem of high unemployment only a few times – satisfied with the central bank’s usual stance of imploring euro zone governments to implement structural reforms to their labour markets, on a case by case basis.

Draghi said:

 … although unemployment in the euro area is stabilising, it remains high, and the necessary balance sheet adjustments in the public and the private sector will continue to weigh on the pace of the economic recovery.   

Another false start for the U.S. economy?

Since the global financial crisis ripped the floor out from underneath developed world economies, the world’s biggest one has had several false starts nailing the floorboards back in.

Stock markets have moved in almost one direction since their trough in March 2009 – up – but economic growth and job creation have bounced around.

There are some disturbing signs another false start is afoot, but it has become almost taboo to even raise the issue that the U.S. economy, for all of its progress in repairing bank and household balance sheets, may still be at risk.

Forward guidance is not fully living up to its name

Britain’s economy may have seen one of the fastest rebounds among industrialized nations last year, but half of 56 economists polled by Reuters think the Bank of England has lost some credibility over its handling of the forward guidance policy.

The policy – an advance notice that monetary conditions will not be tightened too fast or too soon – was a way of managing market bets, at a time when the scope for stimulating economies through conventional interest rate cuts was limited.  Many say it was a necessary transition from the ultra-loose rate policy of recent years to a more normal post-crisis one. Indeed, the use of verbal intervention to guide monetary policy has been on the rise in recent years, as shown by this graphic on the Federal Reserve. 

But the BoE’s forward guidance has come under a lot of criticism and its results have been mixed, as highlighted by this Reuters story  and FT blog.