The first point is the upward revision of the Euro Area growth figures for the first and the second quarter of this year. During the first three months, the economic activity was upgraded by 0.1% to 0.5% and during spring GDP figure was inched up by 0.1% to 0.4% (2.1% and 1.5% at annual rate respectively). Carry over growth for 2015 is 1.2% at the end of the second quarter (average growth for 2015 if the GDP level remains at Q2 level for Q3 and Q4) The growth number for 2015 should be close to 1.5%. It will probably be not hard to converge to this figure; I expect that oil price (Brent) will remain below USD 50. This would be a little higher than ECB’s forecasts at 1.4% published last week. Continue reading →
The first point to be mentioned is the lower momentum on US employment. In March, the number of new jobs was low at 126 000 versus 264 000 in February. January and February figures have been revised downward by -69 000. In a recent past, revisions were on the upside.
During the first quarter, less than 200 000 jobs were created each month on average (197 000 exactly) versus 324 000 for each month on average during the last quarter of 2014. The biggest change can be seen in “professional and Business Services” where the number of new jobs has been divided by a factor 2 between the last quarter of 2014 and the first of this year. In the manufacturing sector, 29 000 new jobs were created on average in the last three months of 2014. The number was just 6 000 on average for the first quarter. The unemployment rate was stable at 5.5%. The wage rate for the private sector was up, on average, by 2.1% which is its average change during the last 12 months. There are no new nominal pressures from wages. Continue reading →
Confidence indicators follow a stronger profile in the euro zone.
Households and companies have a more positive perception of their foreseeable future.
For households, confidence indicator is back, in March, to its 2007 level if we follow the European Commission survey.
The situation is changing as a result of the cheaper oil, low interest rates and a more buoyant labor market (employment was up in 2014 for the Euro Area (+0.6%) This will continue in 2015.
This more robust perception of the future is seen through stronger retail sales. (April 8 for February data)
On companies’ side indices also are improving. Markit indices for March are more robust and are consistent with an increase in activity in the first quarter. The momentum in orders and employment suggest an increase in business dynamics leading to the convergence towards a virtuous circle.
The IFO survey rose rapidly in March as it did in recent months. German indicators appear robust and Germany seems to be the engine of recovery with a stronger internal demand
The INSEE business climate index rose slightly in March. 3-month improvement is significant, but does not reflect a violent acceleration of activity.
Other Important Issues
Janet Yellen speech in San Francisco suggests that the Fed’s president wants to see higher fed funds this year. If the economy converges to the Fed’s scenario then the FOMC will have to increase rates. The argument that inflation will accelerate due to the improvement in the labor market is not completely convincing. The idea of defeating inflation before it starts follows the assumption that the moment where inflation will accelerate is known in advance. Some Very Serious People point to a high probability of high inflation since 2009 and the implementation of unorthodox monetary policies, but with little success. The inflation rate is just 0.3% in February following the PCE index.
The Markit index for Chinese manufacturing was down in March but the average figure for the quarter was the same than the 4th quarter average at 50- The activity is still sluggish
In the US, the Markit index is up but the average T1 is slightly lower than that of T4
The US inflation rate has registered a slight increase of 0% in February (-0.1% in CVS) and 1.7% underlying rate – Do not forget that “Shelters” in the index has a contribution of 0.95%. Other dub-indices do not change a lot.
In Japan, retail sales improved moderately and the gap with the first quarter of 2014 (before the VAT rate hike) is still 6.5%. Decline in industrial production in February
British inflation was 0%. This is the lowest figure since March 1960. Retail sales where strong in February
What will happen this coming week?
Employment figures in the US for March are the key number this week. It is reinforced by the fact that Yellen conditions even more now her strategy on employment. It will be Friday at 14:30 (Paris time)
In the euro zone, the inflation rate in March and the unemployment rate for the month of February will be released Tuesday at 11 am. The inflation rate should approach 0%
Markit and ISM surveys for the manufacturing sector will be published Wednesday. Then we will have a fuller understanding of the global economic dynamics.
On 1 April, the Bank of Japan will release its Tankan quarterly survey
Publication of household spending in France for the month of February, Tuesday morning
In February, in the Euro Area, companies and households have sent a positive message on their expectations. Confidence indices were up for both. The PMI/Markit index is at its highest level since June 2011 and the European Commission Consumer Confidence index has never been so high since September 2007. Two points to be noticed: constraints are not binding as strongly as they did. This is related to lower euro, lower rates and lower oil price in the Euro Area. Every economic agent has more capacity to adapt to its environment and to make arbitrage. The other issue is that uncertainty on Greece and anxiety linked to Ukraine haven’t had impact on companies and households’ behavior.
The PMI/Markit index has a profile which is consistent with GDP quarterly growth and the consumer confidence index is well correlated with consumption momentum. Both indicators will be supportive for stronger growth. In other words, these two types of signal suggest that the economic situation is changing on the upside in the Euro Area.
The ZEW survey for February in Germany gave the same signal.The combinationof all these indicators may show the real start of the Eurozone economic expansion.
Other Important Issues
The agreement last Friday on Greece is just a way to postpone the deadline that was fixed on February 28. Greece may have 4 months to find a new deal if the arguments presented to the Eurogroup on Tuesday 24 are convincing (phone agreement by the Eurogroup expected tomorrow). But the bailout conditions have not been removed. The situation is still tight.
In the USA, the industrial production index has followed a slower trend during the last couple of months (+0.06% in December and +0.18% in January). The PMI/Markit index was slightly higher (54.3) but the new orders index is stable at 54.7 and the new exports orders index is showing a slower momentum. This can probably linked to the dollar strength.
The Federal Reserve doesn’t want to hurry to lift-off its interest rates (Fed’s minutes)
Since last week and referring to the meeting that was held on January 22, the ECB now publish minutes of its council. It will be interesting to follow the evolution of the balance of strength between meeting’s members.
The inflation rate in France was -0.4% in January – Close to deflation as the contribution of the index ex energy was just 0.2%. It’s clearly not enough.
Strong recovery in Japanese exports in December and January. Positive on economic growth
Stronger CBI survey in the UK in February – Higher real wage rate due in large part by a drop to 0.3% of the inflation rate: good for purchasing power – Trend in retail sales remains good
What will happen this coming week?
The main point this week will be Janet Yellen testimony at the Congress. It will be on Tuesday 24 (and repeated on 25). We expect insights on the Fed’s monetary policy during the Q&A session.
Surveys in the Euro Area with IFO (Monday in Germany), INSEE (Tuesday in France) and Istat (Thursday in Italy) to have a clearer view on the short term outlook
Inflation in the US (Thursday) and details in the Euro Area (Tuesday)
In France, consumer confidence & unemployment (Wednesday), consumers’ expenditures (Friday)