You will find enclosed my Economic Outlook – November 2015
Will the recovery of the French economy be undermined by the murderous attacks in Paris on November 13? Beyond the dramatic aspects and explanations that are not directly our responsibility, it is the question we must ask.
For the French economy this negative shock arrives while it is emerging from a long period of very low growth. In recent months, elements for a more sustainable and favourable trajectory were progressively put in place. The attack could challenge this change in trend. The risk would be to see the economy converging to a slow growth profile that couldn’t generate net jobs creation.
Spontaneously the immediate answer to the question suggests a “wait and see” behavior. The uncertainty engendered by a series of attacks creates a significant blur on the future situation. From the consumer side, additional uncertainty could be perceived through an expected fragility on the labor market. In this case, it would be rational for him to reduce his consumption and save more today to face a weaker situation in the future. As for companies we can imagine that the uncertainty caused by the terrorist attacks could lead to more cautious behavior especially in investment decisions. This would be very damaging because the economic cycle is built over time around the investment.
Therefore one could imagine a negative impact on the activity with an increased risk of recession.
Yet it is not so simple. Continue reading
The main issue this week was the US employment figure as it may change the Fed’s mind on monetary policy. Nevertheless, employment is not the only aspect to mention to catch the US economy momentum. Another important issue, this week, is the rapid and deep drop of German industrial orders from outside the Euro Area. It’s a source of concern for the global investment dynamics. The last important point is the non-null probability of a rate lift-off at the Bank of England in 2016. Mark Carney has mentioned this possibility after the Monetary Policy Committee Meeting of the Bank. It’s not the first time that the BoE and Carney take this kind of commitment.
Eight points this week to follow the macroeconomic environment
1 – There was impatience to get the number of jobs creation in October in the US as it could be a trigger for a Fed’s rate move at its December meeting.
The number was strong at 271 000, way above expectations at 185 000. Nevertheless, the employment rate was almost unchanged for all classes of age and was unchanged for the 25-55 years of age. In other words, there were no supplementary pressures on the labor market even with employment surprising on the upside.
This figure comes after August and September during which the number of jobs creation was low. As a consequence, the average number of new jobs in the last 3 months is below the average of the 3 previous months: +187 000 in August, September and October versus 243 000 from May to July. Continue reading
The number of new jobs, 271 000, is strong in October. In absolute terms this is remarkable. The question we must ask is the following: is it a change in trend or just a catch up after two mediocre months?
If this is a change in trend with a November figure consistent with that of October then this increase, for sure, the likelihood of Fed rate hike in December. This is the reasoning that one often reads, at least implicitly, this afternoon. If it’s just a catch then the question of a change of Fed’s strategy remains.
The problem is this: In the last three months (August, September, and October 2015), average job creations were 187,000 after 243,000 in the previous three months. In 2014, for the same 3 months the figure was 228,000 and that of the previous three months was 257 000. The profile is similar but at a lower level than in 2014. There are no additional tensions spontaneously when we look at the data. Continue reading
13 points this week to follow the macroeconomic momentum.
1 – The Fed is back in the game after its last week meeting (27/28 October). It hasn’t changed the stance of its monetary policy but it has deeply changed its press release. Headwinds coming from the external environment of the US economy were the main point to notice in September. The message from the Fed was that the probability of a Fed’s lift-off this year was low. This point has been erased in the October’s press release. Moreover, the Fed has mentioned explicitly a potential change at its next meeting (15/16 December).
Can we expect a lift-off in December? I don’t think so. The main reason for a change would come from the US central bank commitment to hike its interest rates in 2015. But as always the decision will be data dependent. The current economic situation will not create tensions that could push the Fed to change its strategy very rapidly. Recent data on the ISM and on retail sales have shown weakness that cannot be a support for a change.
Janet Yellen will testify in the Congress at the beginning of December (2 and 3). It could be a source of information on the Fed’s strategy Continue reading