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Saturday 15th July 2017
Hi Friend,
Jobs Growth but at What Price ...?
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Fears of a slow down are misplaced, according to latest jobs data. The ONS released the latest UK Labour Market data for the month of May this week. 32.01 million people were in work, up by 324,000 on a year earlier. 1.49 million people were unemployed down by 152,000 in the same period last year. The unemployment rate fell to 4.5% from 4.9% a year earlier. This is the lowest number since 1975, below the peak immediately prior to the slow down in February 2008.
The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.9%, the highest since comparable records began in 1971. There were almost 800,000 vacancies in the economy. Vacancies were evident in manufacturing, construction and the service sector. So what's the problem?
The problem is pay. Earnings increased by just 1.8% in May, compared to an increase of almost 3% in the final quarter of last year. Public sector wages were slightly ahead of private sector pay. Remuneration in manufacturing and construction slumped. Policy makers are at a loss to understand the anomaly. Strong jobs growth should lead to pressure in recruitment and an increase in earnings. Rising inflation should put additional pressure on wage settlements. Real earnings fell by -0.9% as CPI inflation hit 2.7%. There are real fears, the squeeze in household income will lead to slowdown in spending, domestic demand and growth in the economy.
How can we explain the dichotomy? Productivity? Low levels of investment? The Gig Economy? Zero hours contracts? Public sector austerity? Job insecurity? Fears for growth? The situation is not unique to the UK. The US faces the same challenge of a lower rate of growth with subdued inflation, jobs growth and low rates of pay.
The common factor in the US and the UK, is life on Planet ZIRP. One day we will realise low rates may be the problem. Rising base rates and a mortgage income squeeze are inescapable in pressuring household incomes. Low rates of productivity and real incomes may just be a phenomenon of life on Planet ZIRP. Problems for savers, pressure on pensions? It is time to end the central bank experiment and follow the Fed escape route ...
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Brexit fears top CFO fears ...
Concerns about trade prompted the CBI to make the transition call on Brexit last week. Deloitte published the latest CFO survey for the second quarter of 2017 this week. Business confidence among Finance Directors and CFOs took a hit post election. Many must have shed a tear along with the Prime Minister as the result came in. More uncertainty, a hung parliament and the prospect of another election ere too long, would have tested the board room resolve of many.
Political uncertainty and the effects of Brexit are weighing on sentiment. Reality is dawning as Brexit looms. 72% of CFOs expect some negative effect on their business as a result of Brexit, compared to 60% in the first quarter of the year. Fears for growth in the economy this year also features in the second quarter survey. Risk appetites are lower and the appetite for expansion is depleted. Investment, recruitment and discretionary spending will be hit.
The apparent lack of direction in government policy is a further cause for concern. The reality is dawning ... there is no business case and no economics case to leave the EU. Payments to the EU may continue, the ECJ may rule the Tory back benches. The timeline for critical investment decisions in key industries is approaching. Many businesses are hoping Brexit won't actually mean Brexit after all, some wake up in the morning still hoping it was all a bad dream ... meanwhile in the White House ... the nightmare continues ...
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Trump back in Europe ...
Trump was back in Europe this week. It was Bastille Day. Macron stole a march on May and Merkel. The special relationship evident. Who could forget the French assisted the Americans in their fight for freedom against the British. The special relationship dates back to Lafayette and the Battle of Brandywine in 1777. Trump offered an excruciating lesson in history to the evidently bored Macron.
The visit was deemed to be a great success. A welcome distraction from Trump juniors dalliance with the Russians. An act of treason? No "Don is a good boy. He’s a good kid. And he had a meeting, nothing happened with the meeting. It was a short meeting as he told me — because I only heard about it two or three days ago." "My son Donald was open, transparent and innocent. This is the greatest witch hunt in political history. Sad" ... tweeted the leader of the Free world.
"It was a great honor to represent the United States at the magnificent Bastille Day parade. Went to Eiffel Tower for Dinner with Mrs Macron". Looking in good shape and beautiful! [Madame Macron not the Eiffel Tower]. So much for the international language and diplomacy of male chauvinism.
The French have worked out the formula for a successful US state visit. One on one meetings, Trump can't cope with a G20 group. A parade, a big beautiful parade, Trump loves a parade with marching bands, the bigger the better. No press or limited press access with predetermined questions preferable. Short set speeches with autocue, no ad libs especially in front of camera. An ego boost, a special meal for four at the Eiffel Tower, frogs legs with ketchup and fries the favourite. No politics or policy as a side order.
Just look what can be achieved. Trump agreed to reconsider the Paris agreement. He probably didn't realise it had anything to do with global warming, just the fact that Brigitte Macron looked cool.
Trump explained his belief in transparency to the press corp on Airforce One. He was talking about the great Mexican wall, not the White House press office!
"You have to have transparency, you have to see what’s on the other side of the wall. And I’ll give you an example. As horrible as it sounds, when they throw the large sacks of drugs over, and if you have people on the other side of the wall, you don’t see them — they hit you on the head with 60 pounds of stuff? It’s over. As crazy as that sounds, you need transparency through that wall."
Here's a President with a clear grasp of how drug shipments are moved around the world, a big sack and a strong arm ... excellent! They should really shout "Fore" as they throw. Like we do at Mar A Lago ... that should reduce the death toll in the drugs trade ...
That's all for this week from The West Wing, Whisky, Tango, Foxtrot ... You can check out the series of blog posts here or leave any comments or LIKES on the Facebook page here ...
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The week in markets ...
Markets rallied as weak US inflation data suggested the Fed may hold back on rates. Sterling rallied against the Euro and the Pound. Gold and oil prices were up ... gilt yields increased in the UK and Europe, softening in the US and Japan ...
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| John
That's
all for this week. Have a great week-end ... Don't Miss the Economics Conference on the 13th October. Our theme is the Economics of Greater Manchester. We will be talking about the Inclusive Growth Challenge, Balancing the Books and the Sectors Driving Growth in the City Region! Another Great Conference in the pro-manchester series ... Book Now Don't Miss Out ...
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