US jobs and manufacturing activity My Wednesday column

This post is available in pdf format My Wedenesday Column – November 7

US job growth is buoyant, but is it all down to the Trump effect?
The US economy created 250,000 jobs in October, which is a bit higher than the average of 213,000 witnessed since the start of the year. However, October is usually a fairly good month for new job creation, with 271,000 in October 2017, and an average of 246,000 in the month of October since 2013 as compared to an average of 206,000 for other months.
The labor market is buoyant overall, reflecting a solid pace of economic growth although nothing to write home about with 2.25% per year on average since 2011.US jobs Continue reading

The Fed will stay on the path to higher rates in 2019 – My Monday column

This post is available in pdf format Federal Reserve – My monday Column

The Federal Reserve meets on September 25 and 26, and a 25bps hike to the fed funds rate is expected, putting the effective rate in a range of between 2% and 2.25%, with another hike expected in December. The Fed now seems to agree on these four monetary tightening moves for 2018, so the next big question is 2019. During the latest update of economic and financial projections from the members of the Federal Open Markets Committee (FOMC) in June, three interest rate hikes were expected in 2019. How can we get a clearer idea of what’s to come?
Four interest rates are now confirmed by the Fed. I had mentioned this scenario at the start of the year due to the White House’s implementation of expansionary fiscal policy and I have not changed my mind: the hike to the fed funds rate is just a way to iron out the imbalances caused by this policy that seeks to fuel domestic demand.

This domestic momentum reflects the impact of two factors: the first is the direct effect of tax cuts and rising public spending, and we can see the positive effects of this twofold approach for demand; the other component is trade policy that aims to use domestic production to replace imports, thereby sharply driving up demand for companies’ goods and services.
So the White House has adopted a two-pronged approach: on the one hand it bolsters domestic demand and the other it directs this additional demand towards US companies rather than imports.
This internal momentum will have at least two direct consequences: the first is the risk of inflation because demand is strong and because of higher import duties. Continue reading

Ten Years on – my Monday Column

A pdf version of this post is available Ten Years on – my Monday Column

On September 15, 2008, the collapse of Lehman brothers set off a shockwave that rippled out right across the world economy. What can we make of this watershed moment 10 years down the line?
The extent and duration of the shock that hit the world economy are still impressive even 10 years later. Some observers had anticipated the property market’s role in triggering the upheaval, but no-one had envisaged the intensity of the shock or how long it would last.
Between the end of Spring 2007 and Fall 2008, the financial system crumbled astoundingly quickly and astonishingly easily, to an extent that remains unbelievable still to this day. The collapse of Lehman Brothers was the culmination point, coming in the wake of other investment banks’ demise – although these previous casualties had been rescued and taken over by other financial institutions – and its bankruptcy was accepted without taking the full measure of the consequences. It was a step into the unknown, and enough to strike fear into the heart of any economist at the time. Risks quickly emerged as insurer AIG was saved just a few weeks later: Lehman marked the final stage in the breakdown process, as the realization dawned that history was on the brink of a new era. Continue reading

The Italian standpoint is changing – My Monday column

This post is available in pdf format  My weekly Column – Italy Standpoint – PW

What were last week’s major changes?
The main change was in Italy with a strong and rapid drop in the interest spread with Germany.it-ger-spread10y

Why ?
Since the new coalition government came to office, fears have emerged on exactly how the campaign-trail program would translate into the forthcoming budget – an answer to this question is expected on September 27.
The government’s stance so far has been to be fairly relaxed, especially on the 3% threshold (of budget deficit as % of GDP), which explains why the yield spread with Germany widened considerably over recent weeks.

This was a source of concern as the Italian economy would soon have run up against financing difficulties due to the reluctance of non-resident investors – who hold around 35% of the country’s debt – to revisit the Italian market after withdrawing their investment in the country all summer. Italians cannot and do not want to leave the euro area, so additional pressure on liquidity and interest rates could have hampered funding for Europe as a whole.

However, the economic situation is swiftly changing in Italy, as economic activity slowed sharply over the summer months, Continue reading