Chair of the Federal Reserve Janet Yellen with the IMF's Christine Lagarde. Photograph: Getty Images.
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Don't be mislead by the poor data, the US economy is still in rude health

While current storms will weigh upon February’s statistics, Q2 growth could now hit 4 per cent and US rates could move significantly higher along the curve.

Economists have been tearing their hair out trying to deconstruct the recent string of negative data surprises, which have undermined confidence in growth, to eliminate the weather effect. The first significant tainted release in this series was probably the ostensibly weak employment report for December, which we received on 10 January. The consensus had been for a 197,000 increase in non-farm payrolls, but the data showed only 74,000. Weekly earnings and hours worked also ticked down and failed to match expectations, and the headline unemployment rate apparently only fell due to a further fall in the participation rate to a new low for the cycle of 62.8.

Further disappointments followed for building permits and pending home sales, the Manufacturing ISM survey, and vehicle sales. Finally the icing on the cake was the January employment report, released on 7 February. As in the previous month, non-farm payroll growth disappointed, at 113,000, as against a consensus for 180,000. However, perhaps we have seen the first signs of Spring, as the household survey revealed a contrasting picture, with a 638,000 increase in employment, an increase in hourly earnings, a fall in the broader, U6, measure of unemployment to 12.7 per cent (the lowest since the Fall of 2008, just after the Lehman bankruptcy, when U6 was sky-rocketing). Last but not least, the participation rate ticked up to 63.0 per cent.

All of the above conspired to force the yield on 10-year US T-Notes down from just over 3.0 per cent at the turn of the year, to a low of 2.58 per cent on 3 February, as investors dashed for cover.

As we stand, the new Fed Chair Janet Yellen has made it clear that continuity will be the watch-word, and that she feels the output gap is still considerable, implying a huge swathe of avoidable and unnecessary human misery. In support of this view, she would point to the employment-to-population ratio, which has improved negligibly since the recession, when it fell through the floor, as a good indicator of huge slack in the labour market. However, New York Fed researchers Samuel Kapon and Joseph Tracy recently published a paper highlighting the potential for the employment-to-population ratio to mislead us, unless we take account of "baby-boomer" demographics:

The E/P ratio is a misleading indicator for the degree of the labor market recovery. Adjusting for changing demographics has an important impact on the picture that emerges about the degree of the labor market recovery. The actual E/P ratio suggests that the labor market has made relatively no progress since the end of the recession in recovering from the 4.1 percentage point decline in this measure. In contrast, the gap between the demographically adjusted E/P ratio using our normalization and the actual E/P ratio is a much smaller 0.7 percentage points.

In other words, permanent drop-outs from the labour force (retirees, for example) of course mean that the participation rate has fallen and therefore the fall in headline unemployment rates is "for real" and has the potential to lead to an inflation problem quite quickly. The last Fed meeting minutes highlighted that, "much of the downward trend in the labour force participation rate since the start of the recession … as the result of shifts in the demographic composition of the workforce and the retirement of older workers."

The US economy also faces much less fiscal drag this year, with the expected change in cyclically adjusted budget balance being +0.5 per cent in 2014, after +2.7 per cent last year.

Turning to the markets, they already seem to be correcting for the weather effect. Treasury yields actually rose last week, even in the face of several weak-ish data releases. Fed fund futures are still priced well to the dovish side of the FOMC’s December Summary of Economic Projections (SEP), and don’t forget the FOMC’s membership changed in January, becoming significantly more hawkish. Taking all of this into account, although the current storms may well weigh upon February’s statistics, Q2 growth could now hit 4 per cent and US rates could move significantly higher along the curve. Of course this may have dramatic effects upon the equity markets and on EM currencies.

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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The politics of the kiss

From the classical period via the Kremlin to the Clintons: a brief history of political smooching.

Iowa and New Hampshire are behind us. Super Tuesday beckons. For fans of the competitive sport of baby-kissing, this is as good as it gets.

Meanwhile, closer to Britain, kissing’s in our very constitution. Jeremy Corbyn’s future, depending on his success, could involve taking a trip to the Palace to kiss hands as Prime Minister – and as a republican. Being sworn into the Privy Council in November, he even managed a peck on the royal paw, but reportedly stood fast and did not kneel.

Why is there so much snogging in politics? 

Ancient Romans and Persians established – dare we – a pecking order on meeting. This ritual would make it instantly clear if they were equals (full-on, mouthy kiss, the basium), separated by a slight gap (cheeky peck, an osculum), or vast unequals (foot-kissing accompanied by much grovelling). Even heads of state greeted people in this way.

And there was nothing more dramatic – and bizarre – than the socialist fraternal kiss. Kremlinologists would even measure its intensity, to see how close Communist leaders were. The rule was to do three alternate kisses on the cheek, aping the Ancien Régime’s Orthodox Easter greeting. When two leaders were especially chummy – like then Soviet leader Leonid Brezhnev and GDR head Erich Honecker at the 30th anniversary of the GDR in East Berlin in 1979 – the world would witness a big, sloppy lip-plant. Paris Match splashed Régis Bossu’s iconic black-and-white image of the socialist snog across a double-page spread. Le Baiser, they called it.

Nikita Khrushchev, Joseph Stalin’s successor, locked lips with USSR chairman Klim Voroshilov when returning from a US visit in 1959. In July 1937, Stalin planted a decidedly non-frigid one on Ivan Spirin, a polar explorer and state hero.

But Brezhnev was the true practitioner. The joke in Russia went that he described a Warsaw Pact comrade “as a politician, rubbish...but a good kisser!”

Aside from the steamy Kremlin, social kissing on the mouth declined with the Black Death.

The courtly handkuss (kiss on the hand) generally went the same way with the fall of the German and Russian monarchies in 1917-18, though hung on longer in Austria. 

But French president Jacques Chirac made it his trademark, playing to the gallery with French élégance. An Associated Press story from 1967 chronicles the sad plight of European diplomats who had chanced it in Washington. One congressional wife jumped back, claiming she had been bitten; another said a stone was missing from her ring. “Chivalry has its drawbacks,” the story observed.

But back to the babies. We see kissing-as-canvassing in William Hogarth’s 1755 series The Humours of an Election

And in a close-fought 1784 Westminster by-election, we read of 24 women out canvassing with kisses – including the Duchesses of Rutland, Argyll, Ancaster, and (somewhat infamously) Devonshire. 

Kissing voters’ wives – now probably frowned upon by CCHQ – was customary fare for the 18th-century candidate. It’s only in the following century that we see the desexualisation of the electioneering kiss, moving to babies as innocuous. 

In 1836, Charles Dickens has his character Pickwick go to witness a post-Reform Act by-election in Eatanswill. “He has patted the babies on the head,” says the candidate’s election agent, trembling with anxiety. Roar of applause. “He has kissed one of ‘em!” Second roar. “He's kissing ‘em all!” The crowd’s shouts are deafening. And the candidate Slumkey coasts home to Parliament.

US presidents Richard Nixon, Grover Cleveland and Benjamin Harrison forswore baby kissing, grasping for a higher-minded political plane. Bernie Sanders, too. 

But how are the rest of today's politicians doing, kiss-wise?

Barack Obama: After two terms, a kisser to be reckoned with. With adults. Apparently he doesn’t relish kissing babies, and has been called fatally ill-at-ease holding one. Full points for his lucky save with a reticent Aung San Suu Kyi in 2014, ending with a perfectly creditable side-hug and ear-kiss.

Pity Michelle, photographed rolling her eyes as Barack went in for the selfie with, say, Danish Prime Minister Helle Thorning-Schmidt in 2013. (For her part, Michelle fobbed off Silvio Berlusconi with a fully outstretched arm, taking no chances.)

David Cameron: Utterly denied by SamCam after his Tory conference speech in October 2015. Lord Grantham says in Downton he spent most of Eton avoiding the kisses of other boys; clearly, the Prime Minister didn’t get much practice while at school.

Angela Merkel: In her first meeting with Nicolas Sarkozy, out she came with a businesslike German handshake just as he ducked for the Gallic kiss. In a moment of British romantic awkwardness last May, during Cameron’s EU reform tour, we saw the Prime Minister lean in, short of closing the deal, as she pulled back and possibly searched for some new regulations to beat him away with.

Hillary Clinton: Is said to enjoy kissing babies. Is said not to enjoy kissing Bill, as in the 2008 Correspondents’ Dinner when she expertly ducked one from him.  And scored one from Obama instead. But maybe she ought to lay off the baby-kissing: a journal article in Political Psychology suggests voters are 15 per cent less likely to vote for women candidates when their adverts evoke female gender stereotypes.

Donald Trump: In August, his baby-kiss in Alabama went viral – the baby’s mother just a bit too keen, the baby’s confusion mingled with slight fear reflecting the views of many of us. “That baby is us,” wrote blogger Stassa Edwards.

It’s a long road from here to the US election in November. And Cameron can look forward to kissing up to Merkel and a hot summer of Italian, Dutch, and even French kisses too.

So this Valentine’s Day, spare a thought for the babies. And the bureaucrats.