UK Gets Another Woefully Optimistic Budget Projection
Lenny Jordan Blog, 12Mar17
So NFP, or Non-Farm Payrolls, or the so-called ‘Employment Situation’ (talk about terminology – yuk!) was in the stratosphere - especially when you look at the components - and it was highly leveraged, to whit:
The headline of +235k exceeded an expected +200k. Ho hum.
In my short 30 years’ experience in trading off of economic stats, I would say that an over-the - estimate number is to be expected during the first phase of the recovery cycle.
And given a nation of appx 125mil full time workers the number/figure is, in itself only statistically significant to the extent that it correlates with other stats. [How’s that for terminology? ] So let’s look at last week’s stats, which were published in my humble column:
US Q4 GDP +1.9% [okay, right?]
US Durable Goods + 1.8% in Jan17 [Not bad]
US Consumer confidence: 114.8 [A whopper. Bear in mind that Dec was 113.3, which was a 15-yr high.]
Chicago PMI: 57.4 [well above the 50.0 mark for expansion]
S&P CCS HPI (whatever that means) housing index, + 5.6% [the feel good factor, compare the consumer confidence number above.
Now add NFP, and it’s clear that the US economy is strengthening. So okay, Fed, let’s kill it off with pre-emptive rate hikes
The older school economists, educated during the inflation era 1980’s will cry alarm about inflation. They’re past it. We’re in a new era, boys and girls. It’s called the era of nearby DEFLATION.
One (my) solution is to let inflation run a while. Okay, hike 0.25% a few times but don’t have the outdated idea, Mrs. Yellen (and Mr Draghi), that you need to anticipate inflation. Your 80’s economic theories will only cause our economies to struggle. In other words,
We need inflation, so let it go. How far? Watch the US 10-Yr T-Notes. When they get to 4%, then think about putting on the brakes. Right now, they’re at 2.60%, which is only up from the pre-NFP level of 2.49%. So Mrs Yellen, if you want a real leading indicator, there it is.
And a pre-emptive raising of interest rates will only cause the dollar to rally, which will stymie US exports. Then the politicians will blame each other because exports are down.
[Haven’t we had enough of these market-unaware, over-educated bureaucrats?]
UK
Over here, in the UK, we had the usual Chancellor's over optimistic budget projections. In this case, Mr Hammond rightly noted that in terms of productivity, ‘ We are 35% behind Germany and 18% behind the G7 average’.
However, the Office of Budget Responsibility (OBR), which is the ally of the ruling party, and whose projections one may assume are relied upon by Mr H, projects that UK productivity will increase from an annual rate of + 1% to +1.8% by 2020 – almost double. Good luck, Mr H, with your deficit forecasts.
However, to his credit, Mr Hammond proposes lowering the corporate tax rate from 28% to 19% [Which is about where it was (20% if memory serves me correct) when I arrived during the Thatcher – Major era in 1993.]
As businessmen/women, haven't wee seen countless, unrealistic budget projections?
This coming week:
Tues, 14Mar17: US PPI, BoJ Economic Announcement
Wed, 15Mar17: UK Labour Market Report
Wed, 15Mar17: US Retail Sales, US CPI, FOMC Meeting Announcement
Thurs, 16Mar17: BoE Minutes and Announcement
Fri, 17Mar17: US Industrial Production, Consumer Sentiment
Fri, 17Mar17: Everywhere: St. Paddy's Day :)
See you next week, LJ
