- Q2 credit demand was 14.7% of GDP, somewhat larger than Q1’s 14.0%.
- Federal government continues as largest borrowing sector.
- Household and businesses each borrowed about $600 billion in Q2.
USA| Sep 13 2024Borrowing in U.S. Markets Up Slightly in Q2
Global| Sep 12 2024Charts of the Week: Inflation Focus
The ECB’s decision to lower its key policy rates by 25 basis points this week, while widely anticipated, nevertheless underscores a shift in focus, with central banks now prioritizing economic growth and monetary stimulus. This marks a departure from the post-pandemic period when monetary policy was calibrated to curb inflation. In our charts this week we take a closer look at the global inflation scene. We highlight, for example, the growing confidence from economic forecasters in recent months that inflation would fall to target-friendly levels (chart 1). We move on to examine some of the factors that have driven inflation down to those levels, including easing supply side pressures and slower demand (chart 2). That labour market activity is now additionally beginning to weaken in some major economies, and most notably the US, has generated some pay-off too in the form of weaker wage inflation (chart 3). Where exactly inflation will now settle beyond the next few months is more nuanced and subject to a far more active debate. De-globalisation pressures and climate change, for example, might leave inflation higher for longer in the years ahead. On the other hand, other structural forces, such as the rise in remote working, might help to restrain wage and broader inflationary pressure (charts 4 and 5). Technological innovations, and particularly AI, could also play a significant role in the future by boosting productivity growth and reducing unit cost pressures. But while there is now greater certainty regarding the near-term inflation outlook, considerable uncertainty remains about the longer-term impact of these shifts on the global economy’s supply side (chart 6). They could either enhance efficiency, for example, or introduce new challenges, leaving their effects on inflation and cost structures highly unpredictable beyond the immediate future.
by:Andrew Cates
|in:Economy in Brief
USA| Sep 12 2024U.S. Producer Price Index Increases Modestly in August
- Goods prices less food & energy increase moderately.
- Service prices strengthen .
- Food prices edge higher while energy costs decline.
by:Tom Moeller
|in:Economy in Brief
- Personal income tax receipt growth remains strong.
- Corporate tax payments surge.
- Social Security spending fuels outlay growth.
by:Tom Moeller
|in:Economy in Brief
USA| Sep 12 2024U.S. Jobless Claims Up Just 2,000 in September 7 Week
- Initial claims, at 230,000, equal forecast amount.
- Continued claims rise 5,000 in August 31 week.
- Insured unemployment rate still at 1.2%.
Global| Sep 12 2024Is Inflation Targeting Failing? ECB Cuts Rates on Growth Fears as Inflation Lingers
These are not your father’s or grandfather’s central banks. Oh, the names are the same (well, except for the ECB which didn’t exist ‘a generation’ ago). The behavior would be unrecognizable to those who knew Fed policy under Paul Volcker/Alan Greenspan or Bundesbank policy under Karl Otto Poehl and his legacy mates.
What has happened? Is it inflation targeting or is it something more?
INFLATION TARGETING IS FAILING...Instead of working as Ben Bernanke said it would, getting markets to see what central banks want and then acting to make that happen reinforcing the target goal, Central banks have instead used targeting as crutch to promise the target and deliver something else. This dissonance will eventually weigh on central bank credibility and undermine the process that Bernanke said would help banks to achieve their target.
ECB HICP inflation is not that far from its target, but momentum is in the wrong direction and inflation has been over target since early 2021 (38 consecutive months). Core inflation in the EMU is far too high (data lag by one month) and core inflation is accelerating- again moving in the wrong direction.
Some weakness, yes, but is it all that serious? The ECB speaks of a concern about weaker growth, but few of the early reporting EMU members display GDP declines in Q2. Among the 14 EMU members, I have data for only Austria, Germany and Ireland log declines in GDP Q/Q as of 2024-Q2. Austria, Finland, and Ireland log declines in GDP on four-quarter changes – that’s a more serious issue. Among the five EMU member countries that report composite PMI data to S&P, only Germany has a diffusion reading below 50 (indicating contraction). The EMU reading is 51.1 and it improved in August. EMU composite data ranked over the last 4 ½ years has a 51-queue percentile standing putting just above its median for the period (median occurs at 50). France, Italy, and Spain all have queue-standings above their respective 50th percentiles. Ireland and Germany are exceptions; Germany’s queue-standing is weak at the 28.6 percentile. The EMU’s largest economy has been weaker in terms of year-on-year growth only about 25% of the time.
USA| Sep 11 2024U.S. CPI Increase Remains Modest in August
- Services prices pick up m/m, driven by shelter.
- Core goods prices decline again across the board.
- Food prices increase minimally while energy costs decline.
by:Tom Moeller
|in:Economy in Brief
USA| Sep 11 2024U.S. Mortgage Applications Rose in the First Week of September
- Purchase & refinancing applications rose in the first week of September.
- Interest rates on all loans dropped in the latest week.
- Average loan size rose.
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