Causes Shock to Output ...
Manufacturing output fell in April. Latest data suggests activity fell by almost 1% year on year. The car industry shutdown grabbed the headlines. A 7% drop in investment and capital goods the major reason. It is a continuing story of lost exports of investment goods, as world activity slows.
The trade in goods deficit was £12 billion in the month. A reversion to the mean, following the stock build augmented £47 billion deficit in the first quarter. It remains a huge deficit and a significant drain on growth.
Service sector growth in the month was 1.7%. Construction activity was up by 2.4%. The job market continues to reflect growth in the economy. The unemployment rate in April was unchanged at 3.8%. There were 1.3 million unemployed and almost 840,000 vacancies.
Excluding bonuses, average weekly earnings for employees in Great Britain were estimated to have
increased by 3.4, a 1.5% increase in real earnings.
The ONS fast figure estimate for growth in the economy was 1.3% in the month, compared to 1.8% in the first quarter. Most analysts expect growth of 1.4% for the year as a whole, in line with the prior year figure.
The Bank of England Monetary Policy Committee meets next week. Hawks are beginning to ruffle a few feathers. Deputy governor, Ben Broadbent, suggested the Bank’s latest health check on the UK economy warranted higher interest rates than financial markets currently expect. Chief Economist Andy Haldane said the time was nearing for a rate rise to nip inflation pressure in the bud.
The MPC is unlikely to raise rates this month, or this year for that matter. Brexit remains a huge concern for policy makers in the UK. Fears of a global slowdown are haunting policy makers around the world. The Governor is unlikely introduce a rate hike during his tenure. His term in office comes to an end in January.
We expect rates to remain on hold when the MPC meets on Thursday next week.
Fed Set to Cut Rates ...?
Last week, markets were pretty convinced the Fed was set to cut rates this year. As many as three cuts of around 75 basis points were expected. Stock markets rallied, ten year bond yields fell. The latest jobs figures didn't help. Just 75,000 new jobs in April supported fears of a significant slow down, pushing the Fed into action.
The IMF reduced forecast growth this year to 2.6%, the World Bank to 2.5%. The Fed has suggested growth may fall below 2% this year. A significant slowdown following growth of over 3% in the first quarter. The White House team are more confident of growth.
Larry Kudlow, director of the National Economic Council, said Tuesday that the U.S. economy will continue to grow at a strong pace through the rest of 2019 with or without a trade deal with China. Kudlow also shrugged off the release of weaker-than-expected economic data from last week.
“The U.S. economy is very strong,” he told CNBC’s “Power Lunch. “I think we’re in very good shape and I think we’ll maintain a 3% growth pace this year.” “What has changed is lower tax rates, massive deregulation, opening up the energy sector and various trade reforms.”
Good news from the Department of Commerce. Retail sales, increased by a seasonally adjusted 0.5% in May from a month earlier. April sales were revised to a 0.3% increase from a 0.2% decline. Indications continue to suggest a strong performance in terms of unemployment, retail sales and consumer confidence.
For the moment inflation remains subdued. There is no pressure to hike rates, nor much pressure to reduce rates either. “Fade the futures.” That’s market jargon for going against the financial futures market is gaining traction. The market is betting on multiple reductions in the Federal Reserve’s main interest-rate target later this year. The trouble is, the futures market was just as certain late last year that multiple rate increases were ahead.
Ten year bond yields closed up two basis points this week. Technically, a stronger rally may be in play as the Fed is likely to hold off any move this year. China tariffs remain a concern. Trump may consider "tariffs to be a beautiful thing", most economists are not sure. In effect they are tax on consumption supressing consumer demand and inhibiting investment as uncertainty continues.
Hopes for a positive development on trade talks soon will be disappointed. At the moment we cannot be sure, the Presidents will meet for talks at the G20 meeting at the end of the month.
China inflation on the rise ...
In China, inflation increased to 2.7% in May. Food prices increased by almost 8%. Fresh food prices increased by 27%. Pork prices increased by 18%. The swine flu epidemic continued to impact on supply and price.
Output is slowing.The latest industrial output figures from China fell short of expectations, with growth dropping to 5 per cent in the year to last month, down from 5.4 per cent in April. Analysts had forecast a modest recovery for May, with a growth estimate of about 5.5 per cent.
Forecasts for growth this year have been reduced but not by much. GDP growth is expected to increase by 6.3% this year compared to 6.6% last year. The trade war is a significant inconvenience, not the major disaster Peter Navarro, Assistant to the President, and Director of Trade and Manufacturing Policy would have Trump believe. Author of "Death By China, Confronting the Dragon" Navarro is a super hawk in the implementation of tariffs.
Agreement is unlikely to be reached anytime soon. Unless President Xi meets for Dinner with Trump at the G20 meeting, further tariffs will be applied. A rare step in diplomacy and the art of the deal. It all depends on the mood of the President and how much Provigil Trump has imbibed.
Reading this week, "The Siege Trump Under Fire" by Michael Wolff, the sequel to "Fire and Fury" Wolff revealed (p 54)
“Admiral Jackson was the go-to doctor for the president. Jackson was a popular get-along figure, not least because he was casual about prescribing medication. He kept the president stocked with Provigil, an upper, which Trump’s New York doctor has longed prescribed him.”
Interesting. Provigil is a medication that promotes wakefulness. It is thought to work by altering the natural chemicals in the brain. The medicine may impair thinking and or reactions. The warning ... "Be careful if you do anything that requires you to be alert."
Stop using Provigil and call your doctor at once if you have, anxiety, hallucinations, unusual thoughts, unusual behaviour, aggression, being more active or talkative than usual. Evidence of overdose ... confusion, rapidly changing moods, agitation or excitement.
So much explained and now revealed. Presidents Xi and Putin will have compared notes ...
That's all for this week, have a great weekend. We will be back with more news and updates next week!
Our next Brabners Quarterly Economics Briefing will take place on the 25th and 27th June. We are in Manchester at the Lowry Hotel and in Liverpool at the Radisson Blu. Places are limited but you can still register here for the FREE Breakfast session. It would be great to see you there ... J
The Saturday Economist
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