Euro Area: +6.6 million jobs since 2013

During the first half of 2017, the employment level came back at its pre-crisis peak level. This was already the case for the first quarter but it has been confirmed for the three months to June.
This robust profile in employment reflects a catch up when growth is more robust and with less uncertainty. On the graph we see that the employment profile is smoother than the GDP profile and is clearly in a catch up period.
Since the beginning of the recovery at the beginning of 2013, the Euro Area has added 6.6 million jobs.  Continue reading

Are we still in the midst of a crisis?

The answer is yes…or at least that was the answer from Mario Draghi at the press conference after the September 7 monetary policy meeting, thereby indicating the importance of pursuing monetary accommodation in order to keep on supporting economic activity, despite the recent uptick in growth. However, the economy is failing to get back on the road to higher inflation and this means there is still an imbalance.

More broadly speaking, I think that the world economy is still in crisis, especially in the west, if we define a crisis as a transition period between two stable trends.
I don’t mean a financial crisis as triggered by excessive debt used to finance the acquisition of property: financial crises like the one in 2007/2008 are as old as time itself.
Beyond this financial aspect, we can identify two major sources of imbalance, which persist and keep the global economy stuck in a crisis. Continue reading

The ECB decision

The ECB has published an unchanged statement on its monetary policy.
Mario Draghi’s speech was moderate showing that there is no hurry at the ECB in the monetary policy management. No signal on a possible change in the QE framework in the future. The ECB president said that a decision will be taken at the October meeting but said nothing on details of the discussion. Nothing was said on scarcity of bonds in some country and on how capital keys could be respected.
Interest rates are unchanged and will remain low for an extended period. This stability will go beyond the end of the QE. As the ECB forecasts do not show higher inflation in the future and a convergence to the 2% target that will not take place before 2020 we can expect that ECB’s interest rates will remain at the current level (0% for the refi rate) at least until 2019. (see forecasts here)
QE is still at Eur 60bn until at least December 2017. It could be extended after this date if long term inflation expectations do not converge to 2%.

According to the ECB: more growth in 2017 but less inflation all the time

The three charts below show the ECB forecasts for GDP growth, the inflation rate and the core inflation rate. They have been updated today with the ECB meeting.
Growth has been revised on the upside for 2017 but remains unchanged, compared to June, for 2018 and 2019. The inflation rate and the core inflation rate have been revised down. The inflation convergence will not take place before 2020.
Therefore you have to expect that the ECB interest rates will remain at the current level (0% on the refi rate) at least until 2019.
ecb-2017-september-growthforecast
ecb-2017-september-infforecast
ecb-2017-september-coreinfforecast

Wind will blow strongly on the Fed

Stan Fisher the Fed’s vice president has decided to resign at mid-October for personal reasons. This will dramatically changed the internal equilibrium of the Fed’s board. Until now, three seats were vacant but there were 4 members appointed by Barack Obama. Their mandates are going at least beyond 2020 for all of them. The numerical advantage could lead to a statu quo and the possibility for Janet Yellen to remain president of the board.
With Fischer’s resignation the balance changes with now 4 seats that are unoccupied. On these 4, one has already been appointed by Donald Trump. Randal Quarles a private banker will replace Daniel Tarullo but he has yet to be confirmed by the Congress.
Who will be the next three? And who will be the next Fed’s president? Before Fischer’s resignation it could have been Yellen but we cannot expect this conclusion now.

4 types of risks
1 – If the Fed’s members appointments mimic what’s happening in the current Trump administration we can expect that many of these vacant seats will remain vacant. In many ministers, many jobs with high responsibility have not been filled yet. It would be problematic for the monetary policy management and the credibility of the US central bank.
2 – Will the next president be an economist as it is the rule? Jimmy Carter in 1978 named a non economist and it was a nightmare.
3 – There is not a lot of talented economists who claim for the job. It’s annoying for the quality of the board, the monetary policy management and the prospects for the US economy.
4 – With this new equilibrium and a Congress with a republican majority there is a risk on the independence of the Fed. Many reports from the republican side have asked for a Fed following a monetary policy rule (a Taylor rule type). Following such a rule would limit the capacity of judgement of the US central bank and its independence as it will have to follow the rule.

Fischer’s resignation can be a game changer on monetary policy at a moment where the US economic policy is just monetary policy.

Strikes in the UK – Just the beginning?

The strike in two McDonald outlets in the UK is interesting. The main reason is the lack of security associated with zero hour contracts and the low level of compensation.
It’s not a huge movement yet and McDonald headquarter said it is just 0.01% of their workforce in the UK who are on strike.
My guess is that this movement could rapidly grow in a near future. Continue reading