The non-farm payroll (NFP) figures a week ago did not suggest to me that we are out of the woods just yet. After strong numbers for several months on the spin, January’s low numbers weren’t significantly revised upwards and the numbers for February came in on the low side.
This suggests that while growth in the world’s largest economy is continuing, it is not doing so at the pace set last quarter. This is two months of lower than expected jobs growth. Not the end of the world by any means, as it is only two months of data. Maybe the frozen weather conditions are slowing the rate of growth? Once spring arrives, it will be full steam ahead again?
I have a niggling doubt in the back of my mind though. It is not just the USA with figures that aren’t as optimistic. We saw GDP figures for Japan today, which while they are growing, are hardly setting the world alight. As for the Eurozone, it seems that growth of 0.3% is treated as really great news.
When I look at the UK economic figures for the past month or so, they too have been as damp as the weather. The levels of growth talked about in the final quarter of last year seem to be on hold for now. The sharp drop in CPI does not suggest a strong demand in the UK economy.
Confidence is a word frequently associated with the conditions for economic growth. Where is this confidence right now? One look at some of the emerging economies tells a story. Take Turkey for example. Its exchange rate has been hammered recently, leading to the Turkish Central Bank intervening in the markets to protect its currency. Within 48 hours, the impact of the intervention was lost and the Turkish Central Bank responded by raising interest rates quite dramatically to protect the currency.
Turkey was not the only emerging market to suffer. Several others raised interest rates as money flowed out of these countries back to “safe haven” assets. For a fortnight or so, there was a real sense of “risk off” again. Growth figures from China are often cited as a trigger for changes in economic expectations and a trigger for the risk attitude.
We could be on the verge of economies slowing again. That could be a bit tough for the Eurozone, as it hasn’t really got started. With Yellen, the new lady in charge at the FED, I wouldn’t want to bet on the current taper in QE continuing at the same rate if weak figures continue.
This afternoon, Yellen signalled she wants to review more data prior to making any changes. She also said the recovery has been slow by historical standards. The confidence levels seem to be weaker now than a few weeks ago. Mark Carney, governor of the Bank of England gave a similar message last Wednesday. The tales of caution are all around, rather than descriptions of economies that are out of the woods.