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CPI inflation looks set to remain below the 2% target this year, driven by sterling's recent appreciation and lower energy prices.
We see no reason to think that the recent volatility in payrolls--the 311K leap in January, followed by the 20K February gain--will continue.
Today brings an array of economic data, including the jobless claims report, brought forward because July 4 falls on Thursday.
It's pretty easy to spin a story that the recent core PCE numbers represent a sharp and alarming turn south.
Japan's domestic demand has underperformed in the last three quarters, while exports were strong last year but weakened--due to temporary factors--in Q1.
The economic downturn and the Chancellor's unprecedented fiscal measures mean that public borrowing likely will be about four times higher, in the forthcoming fiscal year, than anticipated in the Budget just over two weeks ago.
Wage growth will be crucial in determining how quickly the MPC raises interest rates this year. So far, it hasn't recovered meaningfully.
We expect today's first estimate of third quarter GDP growth to show that the economy expanded at a 2.4% annualized rate over the summer.
The drop in the flash composite PMI in March will be one for the record books, unfortunately. We look for an unprecedented drop to 43.0, from 53.3 in February, which would undershoot the 45.0 consensus and signal clearly that a deep recession is underway.
Economists' forecasts are changing almost as quickly as market prices these days, and not for the better.
Our base case remains that the slowdown in quarter-on-quarter GDP growth to about zero in Q2 is just a blip, and that the economy will regain momentum in Q3 and sustain it well into 2020.
Core durable goods orders have not weakened as much as implied by the ISM manufacturing survey, as our first chart shows, but it is risky to assume this situation persists.
In our Webinar--see here--we laid out scenarios for Chinese GDP in Q1 and for this year.
Neither of the major economic reports due today will be published on schedule.
The news in Brazil on inflation and politics has been relatively positive in recent weeks, allowing policymakers to keep cutting interest rates to boost the stuttering recovery.
The stage is set for the Fed to ease by 25bp today, but to signal that further reductions in the funds rate would require a meaningful deterioration in the outlook for growth or unexpected downward pressure on inflation.
If you need more evidence that the U.S. economy is bifurcating, look at the spread between the ISM non- manufacturing and manufacturing indexes, which has risen to 3.5 points, the widest gap since September 2016.
We're nudging up our forecast for today's August payroll number to 180K, in the wake of the ADP report.
Our below-consensus 125K forecast for today's February payroll number is predicated on two ideas.
The recent slowdown in labour cash earnings growth in Japan halted in September.
Britain's housing market appears to be going from bad to worse.
Japan's average monthly labour earnings growth tumbled to 0.9% year-over-year in August, from 1.6% in July. This is not a disaster.
The small rise in the Markit/CIPS services PMI to 51.3 in February, from 50.1 in January, came as a relief yesterday.
Productivity likely rose by 1.7% last year, the best performance since 2010.
The national accounts look set to show that GDP growth in the fourth quarter was even stronger than previously estimated. Earlier this month, quarter-on-quarter growth in construction output in Q4 was revised up to 1.2%, from 0.2%. As a result, construction's contribution to GDP growth will rise by 0.07 percentage points.
The headline employment cost index has been remarkably dull recently, with three straight 0.6% quarterly increases. The consensus forecast for today's report, for the three months to December, is for the same again.
We aren't in the business of trying to divine the explanation for every twist and turn in the stock market at the best of times, and these are not the best of times.
We are revising down our forecasts for quarteron-quarter GDP growth in Q1 and Q2 to 0.3% and 0.2%, respectively, from 0.4% in both quarters previously, to account for the likely impact of the coronavirus outbreak.
We've previously highlighted the pro-cyclical elements of the BoJ's framework, but it's worth repeating, when an economic shock comes along.
We were worried about downside risk to yesterday's ADP employment measure, but the 67K increase in November private payrolls was at the very bottom of our expected range.
The chance of a zero GDP print for the first quarter diminished--but did not die--last week when the president signed a bill granting full back pay to about 300K government workers currently furloughed.
November's labour market report provided timely reassurance, after last week's downside data surprises, that the economy did not grind to a halt at the end of last year.
April's labour market data show that slack in the job market is no longer declining, while wage growth still isn't recovering. As a result, we no longer think that the MPC will raise Bank Rate in August and now expect the Committee to stand pat until the first half of 2019.
The Fed paved the way with a 50bp emergency rate cut on March 3, with more to come.
The rate of deterioration in the labour market remains gradual enough for the MPC to hold back from cutting Bank Rate over the coming months.
In theory, the headline labour market data in France should be a source of comfort and support for the new government.
The stand-out development in yesterday's labour market report was the drop in the he adline, three-month average, unemployment rate to just 4.0% in June--its lowest rate since February 1975--from 4.2% in May.
The partial government shutdown is now the longest on record, with little chance of a near-term resolution.
As we reach our Sunday afternoon deadline, Hurricane Irma is pounding Florida's west coast with an intensity not seen since Andrew, in 1992.
Today's JOLTS survey covers August, which seems like a long time ago. But the report is worth your attention nonetheless.
We have been rigorous in using the word nascent whenever referring to Japan's wage-price spiral.
Data released this week in LatAm are the last calm before the coronavirus storm.
Collapsing oil prices add fresh deflationary pressure on China.
It's still unclear how exactly Covid-19 will impact the euro area as a whole, but little doubt now remains that Italy's economy is in for a rough ride.
The 20K increase in February payrolls is not remotely indicative of the underlying trend, and we see no reason to expect similar numbers over the next few months.
The over-hyped mystery of the gap between the hard and soft data in the industrial economy has largely resolved itself in recent months.
Brazil's industrial sector keeps losing momentum, despite interest rates at record lows and improving confidence.
Japan's labour data threw another January curve ball this year--last year it was wages--with a change in the standards for job openings.
Chancellor Sunak announced further emergency support measures for the economy on Tuesday and pledged to do more soon.
While financial markets remain obsessed with the Brexit saga, January's labour market data provided more evidence yesterday that the economy is coping well with the heightened uncertainty.
The recent jobless claims numbers have been spectacularly good, with the absolute level dropping unexpectedly in the past two weeks to a 43-year low. The four-week moving average has dropped by a hefty 14K since late August.
The chances of the first phase of the Brexit saga concluding soon declined sharply last week.
Yesterday's labour market figures revealed that employment growth has picked up this year, despite the shadow cast over the medium-term economic outlook by Brexit. The 122K, or 0.4%, quarter-on-quarter rise in employment in Q1 was the biggest since Q2 2016.
The headline employment numbers masked an otherwise sub-par December labour market report.
Data yesterday added further evidence of a slow recovery in Eurozone auto sales.
The weekly jobless claims numbers tend to be choppy around the turn of the year, and our take on the seasonal adjustments points to a clear increase in today's report, for the week ended January 11, even without the impact of the government shutdown.
The labour market was pretty robust before the coronavirus crisis.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively weak footing. The IBC-Br index, a monthly proxy for GDP, fell 0.3% month- to-month, pushing down the adjusted year-over- year rate to 0.3%, from a downwardly-revised 0.7% increase in November.
Today's labour market report looks set to be a mixed bag, with growth in employment remaining strong, but further signs that momentum in average weekly wages has faded.
Trouble is brewing in the core inflation data, despite the benign-looking 0.17% increase in the June report, released Friday. If you annualize that rate indefinitely, core inflation will reach a steady state of 2.1%, so the Fed never needs to raise rates. Alas this only makes sense if you think that single monthly CPI numbers tell the whole truth, and that the fundamental forces acting on inflation are stable. Neither of these propositions is remotely true.
The details of the substantial pay raises being offered to some 18K JP Morgan employees over the next three years are much less important than the signal sent by the company's response to the tightening labor market. In an economy with 144M people on payrolls, hefty raises for JP Morgan employees won't move the needle in the hourly earnings data.
It's tempting to conclude that the pick-up in year over-year growth in average weekly wages, excluding bonuses, to a three-year high of 3.1% in July, from 2.8% in June, signals that employees' bargaining power has strengthened and that a sustained wage recovery now is under way.
We have argued consistently for some time that the next year will bring a clear acceleration in U.S. wage growth, because the unemployment rate has fallen below the Nairu and a host of business survey indicators point to clear upward wage pressures. Nominal wage growth has been constrained, in our view, by the unexpected decline in core inflation from 2012 through early 2015, which boosted real wage growth and, hence, eased the pressure from employees for bigger nominal raises.
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