EU Forecasts, US Employment

A central bank-heavy week ends with US payrolls but unless the number surprises the session should be a quiet one. More important to the markets in the medium-term will be the European Commission’s latest economic forecasts. Today’s notable speeches include the Federal Reserve’s Daniel Tarullo: Evaluating Progress in Regulatory Reforms to Promote Financial Stability (live webcast) and Jeffrey Lacker: Economic Outlook, May 2013.

EU Spring Economic Forecasts (09:00 GMT). EU Commissioner Rehn will hold a press conference and the report will be published online. The report contains macroeconomic short-term forecasts for 2012-2014 and in addition to EU-wide aggregate numbers, it has dedicated country-specific short sections as well. The report’s findings are utilised by the European Semester, which is a process attempting to monitor and stabilise the European economies. The result will be country-specific policy guidance in June-July. We already know that the Winter 2013 forecasts have been too optimistic, so the revisions announced today will make the previous fiscal targets unrealistic.

The European Commission and the Council have to address this somehow, probably offering more fiscal leeway to the crisis countries. This admission that austerity is not working and forecasts have again failed will not lead to nervousness in the bond markets, as the European Central Bank’s OMT-promise suppresses the sovereign yields and inflation is non-existent. The real danger is that either the core countries or the peripheral countries could turn this into a political argument, and with the German elections approaching, this is something worth keeping in mind. The link to the Spring Forecast should appear here during the day.

US April Employment Report (12:30 GMT). The US economy is expected to have added 148,000 jobs in April after the disappointing 88,000 in March. The unemployment rate is expected to remain unchanged at 7.6 percent. Indicators already published for April have not been upbeat, and the weekly jobless claims numbers are not suggesting a strong payroll gain for the month as a whole. While the headline numbers will attract most of the attention, also of importance is the labour participation rate, which has been falling steadily. The Federal Reserve continues targeting the 6.5 percent unemployment rate, but with an increasing number of people going back to school, stopping looking for a job, or working part-time, at some point the Fed will have to admit that the unemployment rate is not necessarily a good metric to base economic policy on. The work force is already pushing for marginal gains: working part-time or extra educating in order to secure quite mundane jobs. With many white-collar jobs being automated or off-shored, even increases in the aggregate demand are not necessarily a guarantee of great improvements in the job market.





US April Non-Manufacturing ISM (14:00). The Composite index is expected to fall slightly to 54.0 from the previous month’s 54.4. This would confirm what the other monthly indicators have already shown – the economy has been slowing during the first quarter and there is still no turnaround in sight. The economy seems to have peaked for a third time now around the new year, and during the last two occasions no improvement was seen until after the summer. The sub-index for new orders will probably be watched for sources of possible growth, but honestly, with the euro area in recession, there will be no surprises here. The latest ISM report is posted here.



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