The week that was
Another solid report on the labour market although the unemployment rate ticked up to 5.5 per cent in seasonally adjusted terms to take a little gloss of the good news of another 34,700 jobs added in December.
In a nutshell, the health of the labour market registered a significant improvement through 2017 with both full and part time jobs increasing at a rapid pace, the participation rate moving sharply higher (to a six year high) and the unemployment rate trending lower. The missing link in this run of good news is a move to higher wages growth which on the latest data continues to track around record lows of just 2 per cent. It appears that the economy needs to pick up further steam in 2018 if there is to be the double of yet lower unemployment and higher wages growth and on that score, the jury is out.
The week ahead
The European Central Bank meets next Thursday and while no one expects any change in monetary policy settings, the sharp and increasingly broad based pick up in economic activity is likely to see at least some commentary cover this increasingly favourable news. Some in the market are looking for the ECB to discuss the timetable for starting to reverse the super-stimulatory stance of policy.
The Eurozone economy went from strength to strength during 2017, with GDP growth accelerating to above trend and the unemployment rate falling. But with inflation holding below 1.5 per cent, the ECB has been happy to allow that sort of growth momentum to build. This increasingly powerful momentum has recently drawn some of the more hawkish policy makers – especially from the ultra-cautious Bundesbank – out of the woodwork to start flagging the idea of winding back quantitative easing and / or increasing interest rates. With inflation remaining well below the ECB target those calls are likely to continue to fall on deaf ears, at least for now.