USA

US economic momentum doubled in Q2, welcome increase in capex

It was hardly surprising that the US economy doubled its growth momentum in the second quarter, as evidenced by the latest data released by the Bureau of Economic Analysis. Following a weak start to the year, which was however the result of numerous non-recurring effects, gross domestic product (GDP) increased at an annual rate of 2.6%. Growth was quite broad based, with the strongest stimulus once again coming from private consumption. The economic acceleration in the US was also fuelled almost entirely by strong consumer spending, with only a marked increase in defence expenditure still making a slight contribution to the higher pace of growth. Otherwise, the very positive development of private investment in machinery and equipment is obvious. The latest GDP data confirm our assessment overall that the US economy remains on a stable growth trajectory. The high level of the most important trend barometers also points towards robust…

The uncertainties of the Fed’s balance sheet reduction

After yesterday’s FOMC meeting it is now clear that the Fed will give the starting signal for balance sheet normalisation relatively soon. This is likely to be in September provided that hitting the U.S. debt ceiling will not lead to any great anxiety at this time. The Fed affirmed that the reduction of the balance sheet will proceed very slowly, thereby ensuring that no serious consequences for the financial markets will be unleashed. Despite this pledge, some market players are asking themselves whether the reduction of the Fed’s balance sheet is actually just a storm in a teacup or if it could yet cause an unforeseen tsunami? The Fed has already announced the extent to which portfolios of both U.S. Treasuries and mortgage backed securities (MBS) will be sold off as part of a transparency drive. Should an optimal balance sheet total of around USD 2,000bn-2,500bn be achieved by around…

Fed reinvestment policy to be changed soon

The US monetary watchdogs left the key rate corridor unchanged at 1.00% to 1.25% at yesterday’s meeting, which came as no surprise to anyone. However, the statements made about the rate decision were changed somewhat compared to the last FOMC meeting and Yellen’s hearing before the US Congress in June. While the previous wording was that the program for the normalization of the central bank’s balance sheet would be implemented “this year”, the representatives of the Fed now hold out the prospect of an “early start.” The representatives of the Fed’s Board of Governors assume here that the US economy will continue to develop in line with their expectations. Basically, the monetary watchdogs continue to expect moderate economic growth and further improvements in the US jobs market. The members of the FOMC regard the short-term risks for the economic outlook as balanced. With regard to the development of inflation, the…

Half-year balance on the US labor market: Employment continues to gather pace at subdued wage momentum

In June, the number of employed persons in the United States increased by an impressive 222,000, as revealed in the latest official Labor Market Report. What is more, the payroll increases initially reported for the two preceding months have also been revised up. This means that an employment increase has been reported for the first half-year of somewhat more than one million persons, an expansion rate that is more or less on a par with that of the same period of the previous year. The US job motor is therefore continuing to tick over quite nicely, and this also does not appear to suggest a change in the direction of the Federal Reserve’s monetary policy. Furthermore, the marginal rise in the unemployment rate in June from 4.3 to 4.4 percent is attributable to the continuing influx of „discouraged workers“ and should not be taken as a warning signal. Until now,…

Global monetary policy before major changes

The beginning of the global economic and financial crisis is now almost exactly ten years behind us, but in international monetary policy the crisis is as present as if it had happened yesterday. Almost all the major central banks, at least in the industrialised nations, are keeping key lending rates at zero or only a little above that, and in many countries liquidity is still constantly being pumped into the markets by asset purchases. Such a long phase of extremely expansionary monetary policy is unprecedented. At present, however, and not only in the USA and Euroland, there are increasing signs that a major upheaval in monetary policy is in the offing. Admittedly it currently looks as though it may take place very slowly, as the central banks have no reason to rush things. Indeed, while the prospects of inflation have risen, they are still limited in scale. This need not…

US labour market: Ongoing momentum causes the number of job-less to drop further

After a period of almost exactly ten years, in May for the first time the US unemployment figure dropped to below seven million again, or so the latest official labour market report shows. With the fifth consecutive decrease the unemployment rate dropped to just 4.3 percent. In other words, the US job engine motor continues to run strong and confirms our picture of robust economic growth in the current and in coming quarters. Given the good labour market conditions, the Fed Governors will hardly be able to avoid announcing the next interest-rate increase before the month is over. The doubters will presumably now emphasise that the number of employees “only” rose by 138,000 persons in May, thus lagging behind market expectations. Moreover, the number of new hirings in the two preceding months has since been revised downwards by a total of almost 70,000 persons. In our assessment, the US job…

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