Ben Bernanke launched a third round of quantitative easing in the US. The Fed’s plan – to inject $40 billion into the US economy each month until the housing market recovers. The Committee agreed to increase policy accommodation by purchasing mortgage-backed securities at a pace of $40 billion per month. Download The Saturday Economist 15th September for more detail.
“These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. The Fed said.
Markets reacted with a jump in prices as the S & P popped up by 2% and the FTSE closed almost 100 points higher in the week.
In Europe the German courts did not block the Draghi bond buying programme clearing the way for the salvation of the Euro at least in the medium term.
Markets rallied and bond markets slipped on the news.
Job market rallies
Wednesday the ONS released the labour market stats. The claimant count fell by 15,000 to 1,570k in August from a revised fall of 14,000 in July. The rate was relatively unchanged at 4.8% but indications are the fall in claimant count unemployment in the third quarter could be almost 50,000. This would be consistent with an economy growing by around 1% and at odds with official underlying GDP output data.
Employment in the three months to July was 29.6 million up from 29.1 million a year ago. The economy has created half a million new jobs despite the loss of 400,000 jobs in the public sector. 250,000 are in self employment and 320,000 in part time work, this may have some impact on labour productivity and output per worker but the pattern of employment is much better than the GDP data suggests.
Sooner or later, the public sector cut backs must lead to lower government spending figures despite the resilience of debt service, social security spending and health care,
According to the wider LFS based data, the unemployment rate was 8.1 per cent down 0.1 on the quarter to July. There were 2.59 million unemployed people, down 7,000 in the three months. Total pay excluding bonuses rose by 1.9% which suggests that with inflation CPI basis at 2.6%, real incomes remain under pressure.
Trade figures in July
Seasonally adjusted, the UK’s deficit on trade in goods and services was £1.5 billion in July, compared with a deficit of £4.3 billion in June. There was a surplus of £5.6 billion on services offset by a deficit of £7.1 billion on trade in goods.
This compares to a deficit (trade in goods) of £10.1 billion in June and and average of £8.8 billion over the prior seven months of the year.
Nothing particularly remarkable in the month’s data other than an adjustment to the June loss of output performance, itself a result of the bank holiday and jubilee party.
Construction output – July
On Friday, the ONS released the latest figures for construction output in July. Output in the month was down 10% year on year but the volume of new work, (accounting for almost two thirds of activity) was down almost 15%.
The march of the makers has ground to a halt and the call to get Britain Building is yet to gather momentum. In Q3 and Q4 construction output may be down by 10% then 5% before a strong recovery is manifest in Q1 2013.
Markets rallied as the Fed moved to boost output. The FTSE closed up over 100 points on the week at 5,919, the Dow moved to 13,593 up almost 300 points. In Europe the German DAX index closed up 200 points at 7412. Gilt yields ten year gilts moved 20 basis points higher in Europe, The US and the UK. In currencies, the dollar softened against the Euro at 1.31 and Sterling moved to 1.23 against the Euro from 1.249.
More economics next week, Don’t miss The Sunday Times and Croissants out tomorrow. Baffled by Social Media. Visit our new Social Media Experts Web site launched soon.
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