Churlish to be taking about economics on the day of the Royal Wedding but why not! Old habits die hard. It's a beautiful day in Windsor and in Manchester for that matter. We will be watching the ceremony. Just love those Blues and Royals ...
The latest data on jobs and unemployment were released this week. So what can we learn from the data? Unemployment fell to 1.425 million. The level is down by 120,000 compared to the same period last year. Unemployment fell by 45,000 in the first quarter of 2018 ...
This encourages further doubts about the suggested weakness of growth figures in the first quarter. The initial estimate of growth was just 1.2% in Q1. Our forecasts for the current year had to be reduced from 1.8% to 1.5% as a result. The Bank decided to keep rates on hold following the weakness of the data. The implication of the latest data is, growth estimates may have been too pessimistic, especially in construction.
Growth estimates may have been too pessimistic, specially in construction ...
The unemployment rate was 4.2%. That's the lowest level since 1975. The economy has created 397,000 jobs over the past twelve months. The number of vacancies in the economy was over 800,000 in April. At peak in 2008, prior to the recession, there were just 700,000 vacancies in the economy. Get the picture? There are no signals the economy is in trouble. Growth forecasts will be revised up. The Bank mantra will revert to the February MPC stance.
"Rates set to rise, earlier and to a somewhat greater extent".
So what of inflation? The Bank of England assumes the worst is over. Inflation will fall through the year. Back on target within the forecast horizon. It was ever thus ... but is this correct?
Oil price Brent Crude tested $80 dollars per barrel this week. Sterling fell below $1.35 against the dollar. Imported oil inflation is on the rise again. Earnings increased to 3% in March. Construction wages were up by 6%. Minimum wage rates have been increased. The genie is out of the bottle as far as public sector pay is concerned. Public sector pay is up by 2.4% in March, up from just 1.2% a year ago.
Real earnings will be positive in the month of April and May. The squeeze on incomes will be relaxed, stimulating household spending in the year ahead. Inflation forecasts are too optimistic. Inflation will remain around 2.4% by the end of the year.
Inflation Forecasts are too optimistic. The rate will stay around 2.4% by end of year.
So what can we learn from the latest jobs data? Well quite a lot actually ... so what of the U.S.A. ...
U.S. ten year bond rates closed just under 3.1% this week. Mortgage rates, (thirty rate year fixed rate average) jumped to 4.6%.
The return to 4.5% ten year bond yields will materialize within a two year time frame. The Fed Blue Dot forecast is for short rates to rise to over 3% by 2020. The Fed is worried about the implications of Trump economics. The GOP fiscal stimulus will exacerbate inflation and the twin deficit dilemma.
Trump economics policy is forcing US rates to rise, creating problems in the developing world especially in South America. Argentina has already booked a date with the IMF borrowing team. Such is the requirement to match the currency outflows as a result of the lure of the dollar yield.
Trump foreign policy is creating chaos around the world. Old alliances are under threat in South East Asia and in Europe. Merkel and Putin exchange flowers and gifts. "The enemy of my friend is is my enemy" As Trump attempts to become the enemy of all. Peace in the Middle East will not be secured by moving the Embassy in Israel nor by moving the goal posts in the nuclear deal with Iran.
Threats on trade and defense spending will not ease tensions within NATO. Threats on trade and defense spending will not ease tensions in South East Asia as far as Japan and South Korea are concerned.
Progress on peace in Korea will not be secured by references to Libya and Gadaffi as a threat or a promise in securing talks. Kim Jong-un will not be swayed by promises of White House support to the regime post de nuclearization. Trump has already been seen to walk away from too many international agreements in his tenure in office. NAFTA, TPP, NATO, climate deal, Iran nuclear deal ... mean, petty and vindictive is no basis for policy at home and abroad.
Mean, Petty and Vindictive - no basis for policy at home and abroad.
Rex Tillerson this week said "I observe a growing crisis of ethics and integrity in the state of American Democracy". Left unconfronted, American democracy will enter its twilight years. Tillerson's relationship with Trump was fraught. His time in government was limited when NBC reported in October, Tillerson had called Trump a "moron". He denied making the remark.
The evidence is emerging for the world to see. The theory of countervailing power is in sway. Old allies will develop new friendships accordingly. Trump has his eye on the prize, it's the Nobel peace prize ... strange that ... just a "medal for a moron" perhaps ...
That's all for this week, have a great week-end,
Join me at the Big Social Media Conference in July ... Another great event in the pro-manchester calendar!
The Saturday Economist
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