US: No Need for Excessive Pessimism - BNP
Analysts from BNP Paribas, explained that the US labour market has been
losing momentum, which could be additional evidence of the soft patch
the economy went through in early 2016 and could also signal further
slowdown on the horizon.
“The labour market is stabilising, with enough job creation to keep the unemployment rate unchanged. On a broad measure, the absorption of underemployment has come to a halt.”
“Although that could be cause for concern, it is also partly due to the brief dip in activity in early 2016. In any case, this makes the Fed's cautious stance easier to understand.”
“The message provided by economic data – both hard and soft – is rarely unequivocal. Contradictions can often be found within the same survey, which is why it can be easier to read data pulling together them into a single indicator. As regards the economic outlook, our in-house indicator is the M&N, a weighted sum of data from the two ISM surveys. The message from that indicator is that the US economy has slowed in early 2016, with activity falling back to the previous post-recession low points, but also rapidly bottomed out to strengthen in March and April.
“The fact that the labour market has stopped improving could simply be because economic activity was weak in early 2016. On that assumption, and if the upturn in our M&N Index is confirmed, the labour market could regain momentum. However, it is also reasonable to be concerned about the lack of improvement in the job market. Consumer spending and residential investment not only make up most of US demand. They have also propped up growth in the last few quarters. If they were to stall, there is almost nothing else capable of supporting US growth, which would therefore decelerate.”
“The situation makes the cautious approach adopted by the Fed, which knows that it has limited scope for action, easier to understand. Note, however, that there is no need for excessive pessimism, since the absorption of underemployment has paused several times recently without pushing down consumer spending.”