by Stephen Roberts | Feb 24, 2014 | Economic Weekly, Laminar Economist Stephen Roberts
Our monthly roundup of global and local economic data and events indicates some deceleration in global growth at the turn of the year, most likely temporary being in large part the result of severe winter weather conditions in the United States that will pass. Importantly, government policies that in key countries and regions have restrained economic growth over the past year and more are on the brink of changing and becoming more growth friendly. In the United States, budget contraction is much less pronounced in the current fiscal year. In Europe, austerity government policies are giving ground to more growth friendly budgetary policies. Adding to the changing, more growth friendly government policy theme, the weekend meeting of G20 finance ministers and central bankers held in Sydney has pledged to adopt member country policies consistent with global growth running two percentage points higher over the next five years than growth generated by current policy settings.
Against this backdrop of an internationally coordinated shift to more accommodative government economic policies, the usual rebound in growth that occurs after severe weather events seems even more assured, a comforting proposition given the big dent the polar vortex weather event in the US has put in the recovery in US housing and manufacturing activity. US housing starts in January took the biggest pummeling in January falling by 16% extending to a sharp fall in confidence in the homebuilding sector. The February National Association of Homebuilders’ index fell in February by a record 10 points to 46. The various Fed manufacturing business surveys have fallen more than expected in February as well with the most notable decline the Philadelphia Fed survey reading collapsing to -6.3 from +9.4 in January. The moderate recovery in US employment through almost all of 2013 also lost some puff in December and January with non-farm payrolls up respectively 75,000 and 113,000 set against earlier monthly gains averaging nearer 200,000.
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by Stephen Roberts | Feb 17, 2014 | Economic Weekly, Laminar Economist Stephen Roberts
It always takes time before an economic recovery is widely acknowledged, mostly because employment is last to improve in the recovery phase. Businesses want to be sure the economy is improving before they start adding workers. If businesses are not yet comfortable about hiring more workers, there is always a concern that lack of employment growth and a rising unemployment rate may stunt what lift in household spending has started to occur before it has a chance to broaden and strengthen. Adding to concern in the early stages of the current economic recovery are a number of potential dampeners on household enthusiasm to spend more freely including a bunching of announcements of future job losses in high profile parts of the manufacturing sector and warnings of a tough Federal Government Budget approaching in May.
The latest labour market reading for January is still mostly bleak. Total employment fell unexpectedly by 3,700 and there has been no growth in employment over the 12 months ending January 2014. The unemployment rate rose slightly to 6.0% in January and is up from 5.4% a year ago. There is, however, one hint in the January labour force report from rising total hours worked, up 1.3% in January and up 2.0% from January 2013, that employment growth may soon take a turn for the better. As the economy starts to improve and demand increases, businesses usually respond in the first instance by lifting the hours worked by existing workers, much as has been the case over recent months. If demand continues to improve extending hours worked starts to become impractical and hiring becomes essential to help meet demand.
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by Stephen Roberts | Feb 10, 2014 | Economic Weekly, Laminar Economist Stephen Roberts
The one clear message from two doses of Reserve Bank (RBA) economic analysis released last week at the first policy meeting of 2014 and in much more detail in the quarterly Monetary Policy Statement is that the RBA wants a period of stability in interest rates until it becomes clearer whether the Australian economy is tracking somewhere in line with the its latest forecasts. In essence, those forecasts show both CPI inflation and underlying inflation pushing above the top of the RBA’s 2-3% target band in 2014 before moderating back inside target band in 2015 and 2016 and economic growth running below trend in 2014 before pushing above trend in 2015 and 2016.
These growth and inflation forecasts are quite unusual. Normally, economic growth accelerating above trend, as the RBA is forecasting for 2015 and 2016, would be associated with upward pressure on inflation. Instead, the RBA is forecasting decelerating inflation as growth picks up. The rationale is that the forecasts represent a reversal of the recent unexpected lift in inflation at a time of sub-trend economic growth in Q4 2013. The high-side inflation surprise has been primed perhaps by a range of one-time factors – government tax changes including the carbon tax, higher petrol prices (back in Q3 2013) and food prices (in Q4), and an earlier-than-expected pass-through of price pressures from the sharply weaker Australian dollar from mid-2013. The RBA draws comfort that wages growth has been moderating to a decade low with little sign of any pick-up in what is still a soft labour market.
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