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US Debt Ceiling - Global Economics Weekly

US Debt Ceiling

Global Economics Weekly Brief

In a last gasp deal, the US narrowly avoided hitting the self-destruct button yet again! While Congress reached an agreement to increase the debt ceiling and allow government employees to head back to work, they failed to find a solution.

Last week’s deal provides only short-term relief: government funding until 15 January 2014 and borrowing authority until 7 February 2014. A Congressional committee will try to agree a long-term solution by 13 December. If it fails we could be watching the sequel to a now depressingly familiar movie in the early part of next year. One outcome of this fiscal uncertainty is that the Fed is unlikely to reduce its quantitative easing programme anytime soon. Are the US Congress made up of responsible people?

UK house prices hit new heights. Growth of 3.8% in the 12 months to August pushed the average price of a house in the UK to new heights. At £245,000, the average UK house cost 0.3% more than it did in January 2008, according to the ONS. But the UK's market is far from national. In the last twelve months growth has been much stronger in London than in the rest of the UK – 8.7% vs. 2.2%, respectively. But while we may have a two-speed housing market, at least the rest of the UK is no longer in reverse gear: house prices are higher than they were at the start of the year in every nation and region. Ask the people who live in these regions and you will probably get a different answer from the one coming from the UK government and media hype! The houses that are selling are the ones up to £249,950. The reason is because the housing stamp duty is 1% then it jumps to 3%!

Labour market shows regional differences.
The UK unemployment rate remained at 7.7% for the three months to August. Although this is slightly lower than the Bank of England expected it to be at this stage, it'll be a while yet before it reaches the 7% threshold at which the Bank of England will think again about the level of Bank rate. Overall, the UK labour market continues to improve. More people are working than ever before, with the number of full-time jobs up by more than 100,000 over the three months to August. We're also working slightly longer hours too (pressure from employers). There are, however, growing regional differences. The unemployment rate in the North West rose to 8.6%, while it fell in the East of England to 5.9%. Also, what it says is that out of the total UK working population of 29.7m, only 53 % (based on ONS figures) are full-time employees on a payroll - the rest –47% -including Interim Managers - are something different and are characterised, broadly, by the need to find their own work for some or all of their time!
Squeeze on incomes continues… At 2.7%y/y, UK CPI inflation in September was unchanged from August. This will be of little comfort to consumers as wage growth continues to lag well behind, growing by just 0.7%y/y for the three months to August. Moreover, core inflation, which excludes energy and food costs, rose to 2.2%, from 2.0% a month earlier. Inflation out-strips wage rises! Rapid energy and food price rises continue!

…but UK retail sales end Q3 in style. Despite the continued squeeze on real wages, retail sales rose 0.6%m/m in September. The improving housing market looks to be making its presence felt. Strong furniture sales saw overall household goods sales register their first year-on-year growth since February. Higher employment and growing confidence have provided some momentum for retailers. Sales growth has strengthened in each quarter this year, with Q3 retail sales posting the fastest quarterly rise since the start of the financial crisis. But rapidly rising energy bills could leave retailers feeling an additional chill this winter.

Eurozone: some good; some not so good. Eurozone industrial production rose by 1% in August from -1% in July. The most encouraging news came from peripheral countries such as Portugal and Greece, where industrial production rose by 8.2% and 1% respectively. A strong 1.8% expansion in Germany and a small but promising 0.2% increase in France will add to signs of a gradual pick-up in economic activity across the Eurozone. While the ECB remains reluctant to cut rates as recent data continue to point to a recovery, they will be concerned by September’s fall in inflation. At 1.1%, down from 1.3% in August, this is the third consecutive monthly fall, reflecting weak domestic demand and high unemployment. The continuous rapid rise in unemployment in main land Europe are seeing thousands of people from main land Europe flocking to the UK!

China's growth improves. China's economy picked up the pace in Q3, expanding 2.2%q/q - the fastest pace in two years. On a year-on-year basis, the pace rose to 7.8% from 7.5%. The data shows fixed investment, industrial production and retail sales all turned in good performances. And while credit growth remains worryingly high, it will keep the economy humming along. Attention now turns to next month's key meeting of Communist Party officials. The expectation is that China's new leaders will announce various reform measures to push the economy towards its next stage of development and reduce the economy's reliance on investment. But at the moment the signs are a bit mixed – it could well be a case of making all the right noises, with the detail left for later. The future of China will be interesting! some readers’ suspicions, Shiller and Fama received the award for reaching opposing conclusions on how efficiently financial markets function

And finally. The Nobel Prize in economics has been awarded to Professors Shiller, Fama and Hansen. Shiller is best known for his part in devising the Case-Shiller index of US house prices. But perhaps confirming some readers’ suspicions, Shiller and Fama received the award for reaching opposing conclusions on how efficiently financial markets function!
Global Economic Outlook for 2013 revealed - United Nations ...

* `10-Step Double-Dip Recession Survival Guide` - click on the connection below for comprehensive information.

Colin Thompson
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email: colin@cavendish-mr.org.uk

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US Debt Ceiling

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