This week the ONS released the latest data on Public Sector Borrowing. Good news for the government and for the Chancellor, January's budget surplus was £9.4 billion, the highest recorded for seventeen years. Borrowing for the year to January fell by £13.6 billion, down to £49.3 billion compared to the same period last year.
For the year as a whole, the out turn for the year could be some £12 billion below the £68 billion forecast in the Autumn statement. Revisions to the year as a whole have improved the outlook. The January actual was just £0.3 billion compared to January 2016.
The budget, just days away, the Chancellor has the option to reduce borrowing more quickly, increase spending or reduce taxes. The Copeland win has left Labour in disarray. Analysts will be advising Theresa May a landslide victory could be on the agenda. No need to pay for a landslide or a lead in the polls for that matter. The Chancellor will exercise caution. Modest spending increases in the Red Box, some savings banked, as the numbers add up for spreadsheet Phil.
Economic news this week ... GDP second estimate ...
The second estimate of GDP in the final quarter of the year was released this week. Growth in 2016 is now estimated to be 1.8% compared to preliminary estimates of 2% growth. Household spending is supporting the recovery, with spending up by 3.1%.
Investment fell. Business investment was down by -1.5%. Overall investment was up by just 0.5%. Exports were up by 1.4% as imports increased by 2.5%. The trade deficit increased from £45.4 billion to £52.2 billion. Growth data slightly disappointing, the data will provide some reassurance for the Chancellor. Caution will be the guideline for the Budget statement.
This week, Bank of England MPC members were in front of the Treasury Select Committee, a review of the February Inflation Report. Andy Haldane talked about weather forecasting, Gertjan Vlieghe discussed doubts about the forecasts and their inability to predict the next recession. Ian McCafferty talked about his reluctance to accept the new estimate of U*, the now preferred term for the meandering NAIRU. U* had been revised down to 4.5% from 5.1%. McCafferty would have preferred 4.75%.
The Bank has been under pressure for consistently over forecasting a growth in earnings. It is understandable. Our chart analyses the relationship between earnings and pressure in the jobs market. (We use the ratio of vacancies to jobs by sector as the measure). Construction is the outlier. Health, social care, financial and professional services under perform. Low skilled sectors, wholesale, retail, transport, distribution out perform. A conundrum. Adjusting the meandering NAIRU will not help. Pinning the tail on the donkey may provide a better forecasting technique ...
West Wing ... Whisky Tango Foxtrot ...
Steve Bannon appeared at CPAC 2017 this week. In an unusual public appearance, the grand plan to "Deconstruct Washington" was explained to the American Conservative Union annual conference. On stage with Bannon was White House Chief of Staff Reince Priebus. The orchestrators of the fine tuned machine, explained how the best buddy duo worked together. They couldn't stop touching! How touching!
Priebus keeps the trains running on time, according to Bannon, Bannon does the big ideas, according to Priebus. No one decides where the trains run apparently. The CNN described the show as a "buddy schtick" of sorts. Ying and Yang in the White House, without the Feng Shui perhaps.
A new political order is being formed said Bannon. National Security, Economic Nationalism and Deconstruction of the Administrative State are the three buckets of policy. Big Buckets with fries. Illegal immigrants, currency manipulators and LBGTs will feel the heat.
The media was denounced as the opposition party. No longer the enemy of the people? Bannon expects relationships with the press to deteriorate in the years ahead. Can it really get any worse?
President Trump has a maniacally focused obsession with the campaign policy agenda, explained the white House chief strategist. So now we know, the White House is full of maniacs, ensuring the trains run on time, with an obsession for economic nationalism! We have been through this West Wing episode before, with Italian subtitles. It didn't end well. We can only hope that more grown ups arrive in the White House soon.
Another grown up did arrive this week. Truth to Power received a boost with news that General H.R McMaster had been appointed to replace Mike Flynn as National Security Adviser. War veteran and author of "Dereliction of Duty" McMaster had written the critique of the Vietnam war in which the failures of the generals to speak openly and honestly to government led to the extension of the disastrous war in South East Asia. Promising!
Secretary of State, Rex Tillerson and Homeland Security Secretary John Kelly were in Mexico City this week, meeting with government officials including President Enrique Peña Nieto. Border security and deportation were on the agenda. Who pays for the wall, was not discussed. It will be a tough trip, advised the President. It was. Sean Spicer described relationships with Mexico as phenomenal. The Southern response was much less effusive.
The trip to Europe had been much more fun. The Russians will be held to account. We all love NATO, The Germans had agreed to recruit 20,000 more soldiers. Result! Who said international diplomacy was difficult.
The Trump administration had started the week with the usual chaos. Mike Flynn was asked to resign by the President for doing what the President would have asked had he only known what Flynn was doing in the first place. Yes, a peace deal with that nice autocrat Putin. The real crime was lying to Vice President Pence, keeping him out of the loop apparently.
The whole world was out of the loop as Trump continued to devastate international tourism with the shock news that something happened in Sweden "last night". Well he had seen something on TV. Fox and Friends had reported on immigration, an increase in crime and the break up of Abba. Sad.
KellyAnne Conway, counselor to the President was taken off air following a ban from MNSBC, problems with the Bowling Green Massacre and confusion over the Flynn resignation to blame. Known as the "Rolling Mascara Massacre", an early morning Conway had assured the media, Flynn had the "full support of the President". Hours later Flynn was fired.
KellyAnne had authored the term "Alternative Facts" relating to Shaun Spicer's statements about the size of the inauguration crowd and developed the euphemism "facts no longer sustainable" about the stream of "misstatements" emanating from the administration. [The Washington Post has logged 134 false or misleading White House claims in the first 34 days of the new administration.]
The Counselor was subject to a complaint about professional misconduct (lying) by a group of law professors from around the U.S.A. A "truth to media" complaint about a White House spokesperson. What would CJ have made of it all.
By the end of the week, Conway was back on air, Trump was on message, denouncing anti semetic incidents as "horrible". He was also tweeting about Black people, "Very much enjoyed my tour of The Smithsonians National Museum of African American History and Culture a great job done by amazing People." Excellent.
Double entendre abounds . We can't be sure if this was a reference to Museum Staff, African Americans or the slave traders who brought them to the USA in the first place. Trump does live (part time) in the Southern White House after all.
Back in Washington by the end of the week, it was all too much. Trump denounced the lying Fake News Media, railed against the leaking FBI. CNN, New York Times and others were excluded from a White House briefing to end the week .... Bannon had advised relationships were going to get worse ... they did ... this cannot end well!
That's all for this week from the West Wing Whisky Tango Foxtrot ...
So what happened to Markets?
Markets, were mixed, the Dow closed at 20,775 from 20,555. The FTSE closed at 7,243 from 7,299.
Sterling was up against the Dollar to $1.249 from $1.242 and was up against the Euro to €1.179 from €1.169. The Euro moved down against the Dollar at 1.059 from 1.062.
Oil Price Brent Crude closed at $56.21 from $55.52 The average price in February last year was $32.18.
UK Gilts - yields moved down. UK Ten year gilt yields closed at 1.09 from 1.21. US Treasury yields slipped to 2.34 from 2.41. Gold closed at $1,256 from $1,237.
That's all for this week. Don't miss the pro-manchester Business Conference in March. We focus on Digital Disruption and the Smart City Challenge. Sponsors Samsung will be demonstrating the latest in virtual rally, plus we have the latest on robotics, AI and autonomous vehicles.
© 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing.
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.