Bloomberg News

Employment in U.S. to ECB Policy Decision: Global Economy

March 01, 2014

Employers in the U.S. probably took on more workers in February than a month earlier, indicating companies were becoming more confident the economy will rebound from a slowdown partly attributed to bad weather, economists forecast a Labor Department report to show.

In Europe, attention will be focused on the European Central Bank meeting. Economists are divided over whether the ECB will increase stimulus. Last week after ECB President Mario Draghi said policy makers are committed to defending the euro area against deflation, a report from the European Union showed February consumer prices exceeded economists’ forecasts.

Bank of England policy makers also convene and will probably keep rates and asset purchases on hold, according to economists at Credit Suisse.

Among other data this week, economic growth in Australia probably picked up in the final three months of 2013, while remaining below its long-run average. Inflation figures out of Mexico are projected to show an easing of consumer-price pressures in February.

U.S. EMPLOYMENT

-- Employment in the U.S. increased 150,000 in February after a 113,000 advance a month earlier, according to the median forecast of economists before the Labor Department’s March 7 report. Even with the pickup, the average payroll increase over the past three months would be the weakest since 2012 as inclement weather slowed hiring.

-- The jobless rate is projected to hold at 6.6 percent, the lowest level since October 2008. Federal Reserve Chair Janet Yellen signaled in congressional testimony last week that the central bank is moving away from its numerical threshold linking any decision to raise its benchmark interest rate to the unemployment rate.

-- “The February payroll report is especially difficult to forecast because of possible further distortions due to weather,” Citigroup economists wrote in a research note. “We think the harsh winter continued to hamper payroll gains in February, but the hit diminished somewhat from December and January. If we are correct and payrolls undershoot the long-standing 185,000 trend again, there is a strong possibility that job gains will skyrocket in March, especially if the survey week is spring-like.”

-- “I sense there has clearly been a shift in attitudes on the part of business people, kind of a pivotal point,” BB&T Corp. (BBT:US) Chief Executive Officer Kelly King said in an interview. The Winston-Salem, North Carolina-based bank has assets (BBT:US) of $182 billion. “Job growth, laying aside December and probably January because of weather, has been better. CEOs want to invest and grow their businesses.”

ECB DECISION

-- Draghi will lead a Governing Council meeting on March 6. Economists are divided on what policy makers may do. While euro-area inflation is less than half the ECB’s goal, the latest consumer-price data may have eased pressure on Draghi to act. The ECB, which has already cut its benchmark rate to a record 0.25 percent, will also publish new economic forecasts.

-- “There remains a tactical case for preemptive easing, in our view, as the ECB staff forecasts should reflect downside risks to the medium-term outlook for price stability,” said Frederik Ducrozet, a senior economist at Credit Agricole in Paris. Nonetheless, last week’s inflation data, which saw the core rate rise to 1 percent, “has increased the risk of a delayed policy response by providing the hawks with an argument to wait-and-see for another month,” he said. Core inflation excludes food, energy, alcohol and tobacco.

BANK OF ENGLAND

-- The Bank of England’s nine-member monetary policy committee will leave its key rate at a record-low 0.5 percent and its bond-purchase program target at 375 billion pounds ($627 billion), according to Bloomberg surveys before the decision on March 6. BOE officials are committed to the forward guidance framework Governor Mark Carney introduced in August, under which they wouldn’t consider an interest-rate increase at least until the unemployment rate falls to 7 percent. The rate is now 7.2 percent.

-- With the economy recovering and the guidance threshold getting closer, the bank said this month that it won’t begin raising interest rates until spare capacity in the economy has been absorbed. Speeches by a range of officials, including chief economist Spencer Dale and policy maker David Miles, have emphasized the pace of interest-rate increases will be gradual.

-- “There seems little prospect of anything other than a ‘no change’ verdict in March,” Ross Walker, an economist at Royal Bank of Scotland Group, wrote in a research note. “We do not detect any meaningful pressure pulling the MPC towards a more ‘hawkish’ stance or increasing the risk of hawkish dissent. A rate hike seems increasingly likely to come in 2015.”

AUSTRALIAN ECONOMY

-- Australia’s economy probably expanded 2.5 percent in the fourth quarter from a year earlier, economists project gross domestic product data due March 5 to show. While the year-over-year gain in GDP would be the strongest since 2012, trend growth is about 3 percent in the Australian economy, which last suffered through a recession in 1991.

-- “The economy remains soft and is likely to stay that way for some time yet,” said Paul Brennan, chief economist in Australia for Citigroup Inc. The Reserve Bank of Australia “should have kept its mild dovish stance at the last board meeting. With the rotation of economic growth toward domestic demand proving to be somewhat drawn out, sentiment to help guarantee a return to trend growth in a timely manner would arguably be better supported by a more accommodative RBA.” The central bank next meets on March 4.

MEXICO INFLATION

-- Mexico’s statistics agency on March 7 may report that consumer prices increased 0.25 percent in February from the previous month after rising 0.89 percent in January, when higher sales taxes took effect.

-- “What we’re seeing in February is an easing of the pressures on inflation, coming from agricultural prices” as weather improved, said Alexis Milo, chief Mexico economist at Deutsche Bank AG. “Inflation is slowing faster than analysts expected. It seems all the inflation pressures were concentrated in early January” with the tax increase.

-- “Expectations are well anchored,” said Pedro Uriz, a strategist at Grupo Financiero BBVA Bancomer SA in Mexico City. “The central bank will be on hold throughout this year. The good cycle in tomato prices will continue to outweigh higher lemon prices, and we don’t see any significant increases in public-sector tariffs.”

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net


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