The current FOMC meeting, which starts today and concludes tomorrow without a Ben Bernanke press conference, is unlikely to produce much news. Steady movement towards a taper of the $85bn, QE3 programme of asset purchases has been checked by a run of bad economic data since March.
I get no sense that much has changed in the thinking of most FOMC officials. There is still a fair bit of confidence that the underlying state of the economy has improved (see, for example, the comments of Boston Fed president Eric Rosengren). The main effect of weak payrolls and the sequester is to increase uncertainty about the trajectory of the economy. That encourages the status quo – and open-ended QE means the default is continued purchases. Read more
We leaned heavily on the idea that sequestration is slowing the growth of the US economy in our write-up of Q1 GDP. The immediate reason to do so is the composition of growth.
Federal defence spending knocked 0.65 percentage points off total growth. Without that, the headline figure would have been an annualised 3.2 per cent instead of 2.5 per cent, bang in line with expectations. Read more
The FT’s US economics editor Robin Harding had an excellent scoop this week on the US plans to change the calculation methodology for the national accounts in a move that will lift US GDP by 3 per cent in July. Even better, he explained that the changes to the way the US statistics authorities plan to count intangible investment and military procurement were not a unilateral act, but part of a United Nations coordinated approach. What effect would this have on Europe, I wondered.
Well, after a root around Eurostat’s website, the UK’s ONS methodology pages and some academic articles, I am really excited. The bottom line for people with better things to do is that Eurostat reckons GDP in most EU countries will also go up by about 2 to 3 per cent. The amount depends on the quantity of R&D expenditure carried out (good for Germany, Sweden and Finland, bad for Greece) and amount of military kit purchased every year (good for France and the UK). With some exceptions, every EU country has to put in place the new European System of Accounts by September 2014. But it gets even more interesting. Read more
After almost five years of disappointing services output, Britain’s shops, restaurants, car dealerships and airlines have come to the rescue of George Osborne. They have also saved the country from deeply misleading “triple-dip” headlines, although output is still 2.6 per cent below its 2008 peak.
The preliminary estimate of gross domestic product rose 0.3 per cent in the first quarter. As my column today argued, we should not pay much attention to this figure, since the cash estimates of GDP, which come later, are more relevant to the economy’s predicament. But there are some implications of this positive surprise and I list them here in order of importance. Read more
This from the FT’s Josh Noble:
The Australian central bank plans to invest about 5 per cent of its foreign reserves in Chinese government bonds, in the latest move to build closer economic ties between the two countries.
The lead set by the Reserve Bank of Australia and a few others is likely to be followed by central banks elsewhere. Read more
Here below is the full statement from Carmen Reinhart & Kenneth Rogoff giving an initial response to criticisms of their work: Read more
The Boston Fed’s annual economic conference has opened with a paper on labour force participation, presented by two senior Federal Reserve Board economists Christopher Erceg and Andrew Levin, that has pretty dovish implications for monetary policy.
Like most other research on this subject, they find that the big decline in labour force participation since 2007 is mainly cyclical, not structural. More interestingly, they split the “employment gap” — the gap between current employment and maximum possible employment — into an “unemployment gap” and a “participation gap”.
Three months after revealing that banks were using wildly different models to measure risk in their trading books, the Basel Committee on Banking Supervision has signaled that it looking for similar issues in the banking book.
In a report to the Financial Stability Board, the committee said it was looking at data from 100 banks in 15 jurisdictions to see how and why they assigned different risk-weights to their portfolios. Read more
One of the benefits of the European Central Bank’s new household finance and consumption survey is that it allows eurozone household data to be compared with that of the US, since the surveys use comparable methodologies.
The survey already caused something of a stir in Germany earlier this week because it appeared to show that the typical Cypriot household was better off than the typical German one. (In 2010, anyway, and subject to a lot of caveats and nuance, summarised in the story.)
Today’s ECB monthly bulletin also picks over some of the data in the HFCS and highlights this ability to compare data with the US Federal Reserve’s Survey of Consumer Finances. One interesting tidbit it points out is quite how much wealth distribution differs between the US and (the euro-wielding corner of) Europe. Read more
The Bank of Japan delivered a statement of intent on Thursday. Under its new governor, Haruhiko Kuroda, the central bank intends to eliminate the persistent deflation of the past 15 years within a two-year horizon. The FT news story provides the main details, save to say that in planning to double the monetary base (notes and coins, plus electronic money created by the BoJ) by the end of 2014, Mr Kuroda means business. Central bank communication does not often use words such as “massive”. Here are five answers to the big questions. Read more