US Economy
Confidence in US economy grows but no consensus; UK industrial production falls
By Finfacts Team
Jul 9, 2014 - 4:46 AM

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Hiring data in recent days has boosted confidence in the US economy while on Tuesday, the report that UK industrial and manufacturing production both dropped in May, down by 0.7% and 1.3% respectively, put a dent in the recent optimistic outlook for the UK economy.

Strong jobs data for June when 288,000 net jobs were added in the US economy and hiring data issued on Tuesday has switched focus to when the Federal Reserve will raise its key interest rate. However, there isn't yet a consensus that the recovery is sustainable.

The Financial Times reports today that Jan Hatzius of Goldman Sachs moved his prediction from the first quarter of 2016 to the third quarter of 2015 in the wake of the jobs report while Michael Feroli of JPMorgan shifted his forecast from the fourth quarter of 2015 to the third quarter. “Basically, we pulled forward our call because the unemployment rate fell faster than expected,” said Feroli. “Secondly, the inflation numbers have been a little higher.”

US employers advertised more jobs in May than in any month in the past seven years, suggesting the strong hiring trend is likely to continue.

More Americans also left their jobs to find new positions and the Bureau of Labor Statistics reported that employers posted 4.64m jobs, a 3.8% increase from April’s total of 4.46m - -  the fourth successive strong gain and is the highest number since June, 2007.

The Wall Street Journal says that sluggish gains in US workforce productivity seen over the last several years will likely continue to hold back overall economic growth,  Jeffrey Lacker, Federal Reserve Bank of Richmond president, said Tuesday.

In a speech to a Rotary luncheon in Charlotte, North Carolina, Lacker predicted the US economy will grow at an average rate of 2% to 2.5% over the near term, citing “subdued” productivity gains, “moderate” increases in consumer spending and “more tempered” growth in housing construction.

“I’ve come to the conclusion that a sustained acceleration of growth to over 3% in the near future is unlikely,” he said.

The Journal said Fed officials, in projections updated last month, predicted gross domestic product–the broadest measure of output across the economy–will grow 3% to 3.2% in 2015 and 2.5% to 3% in 2016.

Meanwhile, growth of Americans’ credit-card balances slowed sharply in May, a sign consumers are cautious about adding to their debt burdens.

The Journal said that the amount of outstanding revolving credit - - mainly credit-card debt - - rose at a seasonally adjusted annual rate of 2.5% to $872.2bn in May, according to a Federal Reserve report released Tuesday. That increase is far below the 12.3% pace recorded the prior month (which was the fastest rate of growth since 2001) and instead in line with the tepid gains recorded over the past year.

Gallup's Economic Confidence Index another indicator, is the average of two components: Americans' views on the current economic situation and their perceptions of whether the economy is getting better or worse, with the potential high at 100, if all Americans were to say the economy is "excellent" or "good" and that it is getting better; the potential low is -100, if all Americans were to say the economy is "poor" and getting worse.

Since January 2008, when Gallup began tracking economic confidence daily, the weekly averages have ranged from -65 in October 2008 to -3 in May and June 2013.

Currently, one in five Americans (20%) say the economy is excellent or good, while 33% say it is poor, resulting in a current conditions index of -13. As for the economy's future, 38% say the economy is getting better, while 56% say it is getting worse, for an economic outlook score of -18 -- the same as the previous week's score.

Gallup reported Monday that Americans' self-reports of daily spending fell back slightly in June, averaging $91 for the month. This is down slightly from a six-year high of $98 in May, but is similar to the $90 average found in June 2013.

UK industrial production

UK production output increased by 2.3% between May 2013 and May 2014. There were increases in two of the main sectors, with manufacturing being the largest contributor, increasing by 3.7%. Water supply, sewerage & waste management increased by 2.3%. However, total production decreased by 0.7% between April 2014 and May 2014. Manufacturing was the largest contributor, decreasing by 1.3%.

The Office for National Statistics said the main contributors to the fall in manufacturing were basic metals & metal products; basic pharmaceutical products & pharmaceutical preparations; and computer, electronic & optical products.

German industrial production also fell in May -- the drops were not picked up in the monthly PMI (purchasing managers' index) surveys.

David Tinsley, economist at BNP Paribas, said the figures were a “dose of reality” after a run of “heady” UK data and a “relatively large disappointment”.

The FT says Kevin Daly, economist at Goldman Sachs, said that, given that other European countries, notably Germany, Sweden and Spain, had also seen unexpected declines in official manufacturing data, the weak reading was “highly likely” to be a blip. This could be related to statistical adjustment processes, he suggested, adding that he expected a rebound in June - - maybe?

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