Sunday, March 9, 2014
The Washington Post
Thursday and Friday mornings will feature huge announcements on both sides of the Atlantic that together will tell a lot about the direction of the global economy.
On Thursday morning, we will find out how much momentum the U.S. economy carried into the final months of the year, as the Commerce Department reports on third-quarter gross domestic product growth. Also Thursday, the European Central Bank will announce the results of its policy meeting. Then Friday, the Labor Department reports on how the job market fared in October.
Here’s what to watch for, and why it matters.
Gross domestic product is the broadest measure of the nation’s economic performance, and in this case the release will tell us what kind of underlying momentum, if any, the economy had just before the government shutdown.
Economists expect the report to show the economy grew at a 2 percent annual rate in the July-to-September quarter, down from the 2.5 percent growth rate in the second. If the number comes in about where analysts expect, it will be evident that the long slog toward a stronger economy remains just that: a slog. The economy has been growing at about 2 percent or a bit slower than that since summer 2009.
The worrisome thing is that this sluggish growth predates the government shutdown and debt ceiling shenanigans that undermined consumer confidence at the start of the third quarter. In other words, the worrisome thing is not just that growth was slow in the late summer, but that there’s not much reason to think it will accelerate to finish the year.
The European Central Bank is under rising pressure to do something about the continent’s rock-bottom inflation levels. The question Thursday is whether it will be ready to pull the trigger on new measures to try to get the European economy revving, will hold back but signal more steps are coming, or disappoint markets by doing neither.
Prices in the 17-nation euro currency area rose by a mere 0.7 percent in the year ended in October, well below the 2 percent annual inflation the ECB aims for. This at a time that big parts of Europe, Spain, Greece and Italy are experiencing very high unemployment.
In Central Banking 101, they teach that too-low inflation plus too-high unemployment equals time to cut interest rates. But the ECB is already near the zero lower bound for interest rates. Meanwhile, the idea of using quantitative easing – the tool most often used by other Western central banks to fight deflation while at zero interest rates – is particularly unattractive to the ECB; it would entail the bank creating euros and using them to buy government bonds, anathema to the founding principles of the common currency, which forbid funding governments through printing money.
The most plausible next steps for the ECB, in the view of many observers, would be to give more detailed “forward guidance” about the future course of its interest rate policies.
The first major piece of economic data for October comes out at 8:30 a.m. Friday with new jobs numbers due. Parsing it won’t be easy.
October was a curious month, with the government shuttered for 16 days and markets on edge amid the risk of a debt default. The consensus forecast of economists surveyed by Bloomberg is that a mere 120,000 jobs were added and the unemployment rate edged up to 7.3 percent from 7.2 percent.
But analysts say it will be harder than usual to draw any firm conclusions about what is happening to the job market. Federal government employees who were furloughed are supposed to count as employed for purposes of a survey of employers (from which job growth data are derived) but could count as unemployed in a survey of households (the basis of the unemployment rate). But the surveys were delayed a bit by the shutdown, so even that effect might not be fully reflected.