3 Numbers to Watch: UK labour market, US housing starts, FOMC
It’s a full day for economic news today, including fresh numbers on Britain’s labour market and an update on US housing starts. The main event, however, will be the Federal Reserve policy statement and forecasts at 19:00 GMT followed by the press conference featuring its chairman, Ben Bernanke.
No doubt about it—Fed Chairman Bernanke is the man of the moment. Pic: Albert H. Teich
UK Labour Market Report (09:30 GMT): Britain’s economy continues to hum along at a moderate growth rate, with the potential for even more progress in 2014 bubbling in the latest numbers. Under “normal” conditions this would be a strong clue for expecting that the central bank will soon begin tightening monetary policy. But monetary policy is complicated these days, even for an economy that’s clearly recovering. As Bank of England (BoE) Governor Mark Carney emphasised last week, “a recovery may be gaining pace but our economies are a long way from normal. Leverage is still high and weak demand for advanced economy exports could persist for some time.”
Some analysts disagree and argue that the UK’s growth of late is sufficient for raising interest rates and pulling in the excess liquidity, if only on the margins. Maybe, but that’s still the minority view in terms of expectations of what the central bank is likely to do in the near term. Nonetheless, the debate about when the tapering in Britain will commence will be revived anew with today’s news on the labour market. Based on the trend so far, the tailwind continues to look encouraging and today’s November update is widely expected to reinforce the bullish outlook. For example, consider recent history for the number of claimants for new jobless benefits—a leading indicator that’s been relatively reliable this year in dropping clues about the change for the better in the macro weather. The trend has been persistently down for new claimants since the summer. Economists think that today’s release will show another drop in last month’s claimant population: a decline of 38,000, according to the consensus forecast. That’s a bit less than October’s decrease of 41,700, but it’s still deep enough to assume that the labour market is healing.
Another encouraging update today isn’t likely to change the BoE’s timetable for monetary policy in part because inflation appears to be cooperating lately. Consumer prices in Britain inched lower to a 2.1 percent year-over-year rate in yesterday’s November update. That’s the lowest pace in four years and just a touch above the BoE’s two percent target. The latest numbers give the central bank a bit more flexibility to maintain the current programme of monetary stimulus. For the moment, Britain’s in the sweet spot for economic news: stronger growth and lower inflation. It’s anyone’s guess if it’ll last, but today’s release on the labour market will likely inspire hope that the best is yet to come.
US Housing Starts (13:30 GMT): Today’s release will fill in the missing data points that remain a mystery due to October’s government shutdown. The last update on housing starts is the August estimate and so we’ll see a triple play of September/October/November figures in today’s release. The closely related numbers on newly issued building permits, however, are up to date, and the trend looks bullish. Permits rose to a five-year high in October. That’s an encouraging clue for anticipating that today’s catch-up data on starts will turn higher. History, after all, shows that permits and starts tend to track one another closely through time and so it would be surprising to see a sharp divergence in the estimates for new construction relative to the upward bias in permit issuance of late.
The main event for today’s blur of residential real estate statistics: the November data for starts, which will dominate the crowd’s perception on the housing trend. The good news is that analysts think we’ll see last month’s level of starts rise to a 952,000 seasonally adjusted annualised rate. That’s a reasonable forecast since we know: 1) permits have climbed recently; and 2) confidence among homebuilders jumped sharply in December, according to yesterday's update of the NAHB Housing Market Index. “This is definitely an encouraging sign as we move into 2014,” NAHB's chairman said in a press release.
Overall, it appears that today’s numbers from the government are on track to tell us that the housing market continues to provide crucial support for the US economy.
US Federal Reserve FOMC Statement & Economic Forecast (19:00 GMT): A busy day of central bank analysis awaits in today’s scheduled policy announcement, economic forecast, and Fed Chairman Ben Bernanke’s press conference that starts at 19:30 GMT. The first order of business, of course, is the issue of whether the Fed will announce that it will begin winding down its bond-buying program. There are compelling arguments for thinking yeah or nay, although on the issue of whether we’ll see a small rate hike today in the Fed funds rate the outlook remains firmly in the “no” camp. The target rate will remain unchanged at the zero-to-25-basis-point range. Nonetheless, today’s statement will be closely read for clues on how (or if) the Fed’s thinking has evolved since the previous Federal Open Market Committee (FOMC) meeting.
For a bit more clarity on assessing the mindset of the central bank, focus on today’s revised economic forecasts. In particular, has the Fed’s projections on GDP, unemployment, and inflation changed since the September assumptions? For example, in the previous set of quarterly estimates, the outlook for 2014 economic growth was revised down a bit to a 2.9—to—3.1 percent range for GDP. Meanwhile, core inflation for personal consumption expenditures (the Fed’s preferred measure of inflation) remained relatively stable in the last round of 2014 projections: 1.5 to 1.7 percent. With the new year just a few weeks away, confidence about 2014 is a touch higher versus the September numbers and so today’s predictions will provide quite a lot of insight about the Fed’s assumptions for the timing on the taper. Then again, perhaps we’ll have more concrete information in today’s FOMC statement and/or Bernanke’s chit-chat.