Eurozone unemployment rate falls to record low Newsflash: unemployment across the eurozone has fallen to a new record low, a week before Europeans head to the polls for the European Parliament elections. Statistics body Eurostat reports that the seasonally-adjusted unemployment rate across the euro area fell to 6.4% in April, down from 6.5% in March. That’s the lowest since the single currency was created, Eurostat data shows. In the wider EU, the jobless rate remained at 6%. This suggests that the higher interest rates imposed by the European Central Bank to fight inflation is not hurting the labour market. Eurostat estimates that 13.149 million persons in the EU, of whom 10.998 million in the euro area, were unemployed in April, adding: Compared with March 2024, unemployment decreased by 103 thousand in the EU and by 100 thousand in the euro area. Compared with April 2023, unemployment increased by 95 thousand in the EU and decreased by 101 thousand in the euro area. Across the EU, unemployment was highest in Spain (at 11.7%) and Greece (10.8%) in April, and lowest in Czechia (2.7%) and Poland (3%). At its peak, during the eurozone crisis in 2013, eurozone unemployment rose over 12%, but then fell steadily – before a brief spike in the Covid-19 pandemic. Closing post Time to recap The US economy grew at a slower pace in the first quarter than initially reported, as consumer spending slowed. US GDP rose at an annualized pace of 1.3% in January-March, below the previous estimate of 1.6%, fresh Bureau of Economic Analysis data shows. The data shows America’s economy had less momentum than expected at the start of the year. But in Europe, the jobs market remains solid. Eurozone unemployment fell to a new alltime low last month, at 6.4%. In the UK, the British Chambers of Commerce is urging the next government to make improving relations with the European Union a key part of its drive to revive the economy. In the financial markets, the FTSE 100 has shrugged off fears over sticky inflation, and is up 46 points or 0.55% in afternoon trading. But in New York, Wall Street is being held back by a 19% slump in Salesforce’s shares after it missed analyst forecasts last night. Over on Wall Street, shares in enterprise software maker Salesforce have plunged by 19% after it disappointed analysts last night. Salesforce reported revenues of $9.13bn for the first quarter of this year, below forecasts of $9.15bn. It also predicted that second quarter revenue would be between $9.2bn and $9.25bn, below analyst forecasts of $9.35bn. Analysts at Saxo say: [Salesforce’s] revenue outlook came in lower-than-expected highlighting that the current demand for AI workloads is not currently translating into higher revenue growth for Salesforce. Top brass at Burberry have paid the price for a disappointing year for the luxury goods maker. Burberry’s annual report, released, today, shows that chief executive Jonathan Akeroyd had not earned a bonus for last year. This pulled Akeroyd’s total pay for the year to 31 March 2024 down to £1.3m, from £4.3m the previous 12 months (when he had received a £1.3m bonus and £1.7m to buy him out of bonus and share awards for leaving his position as boss of rival Versace). Danuta Gray, chair of Burberry’s Remuneration Committee, explains: The Committee judged that progress was made on refining our brand image, evolving our product and strengthening distribution, resulting in some of the strategic objectives being partially met. However, in light of the business performance and broader shareholder experience, the Committee and Jonathan Akeroyd agreed that it would not be appropriate for him to receive an annual bonus for FY 2023/24. CFO Kate Ferry would receive an annual bonus for FY 2023/24 of £121,500, representing 9% of her maximum bonus. Burberry’s profits fell by 40% last year; in the last 12 months, its share price has halved. US jobless claims inch up The number of Americans filing new claims for unemployment benefits has risen slightly, but still remains low on historical terms. There were 219,000 fresh ‘initial claims’ for jobless support last week, an increase of 3,000. The initial claims data is a proxy for the number of workers laid off by US companies and has been low in recent years as firms have held onto labo(u)r. Today’s US GDP report also shows that disposable personal income by 5.3% in the first quarter Inflation took quite a bite out of that increase; real disposable personal income increased 1.9%. Both figures have been revised higher. US GDP growth revised down as consumer spending slows Newsflash: The US economy grew more slowly than first thought at the start of this year. US GDP increased at an annualized rate of 1.3 percent in the first quarter of 2024, according to the second estimate of gross domestic product, just released. That’s the equivalent of quarterly growth just over 0.3%. Previousl, the Bureau of Economic Analysis had estimated that GDP rose at an annualized rate of 1.6%, or 0.4% quarter-on-quarter, which was already the weakest rate in almost two years. Today’s update primarily reflected a downward revision to consumer spending, says the BEA. Today’s report shows that consumer spending, exports, and state and local government spending all decelerated in the January-March quarter; a downturn in federal government spending also weighed on growth. But, this was partly offset by an acceleration in residential fixed investment. Speaking of fiscal rules (see previous post), Oxford economics professor Sir Dieter Helm last week published a very interesting blog post about the fiscal rules, looking at how both parties are pledging to be responsible. But, he warns, this involves the “fudge” of relabelling capital maintenance as investment. Prof Helm writes: Both claim that the days of having the cake of tax reductions and the cake of higher spending are over. Tax cuts will mean spending cuts and spending increases will mean higher taxes. No more Jeremy Corbyn, Boris Johnson and Liz Truss. The sinners have apparently repented. Confronted by the promise of a miracle, here are several possible responses. The first is simply to believe them. The sinners have repented. “Oh Lord, I promise to be a good and a trustworthy steward of state finances. I won’t sin, I promise, even if I/my Party has repeatedly done so in the past. This time will be different, here are my fiscal rules and I promise to stick to them.” The second is to assume that, when the inevitable expenditure pressures become irresistible, taxes are going to go up. The pressures on health spending, more defence, net zero, and workers’ rights in the public sector will simply overwhelm the next government, and possibly as early as spring 2025. Tax cuts will prove unsustainable. Tax increases will be inevitable. The third is to assume that more borrowing will be resorted to, and that it will be the bond markets that bite back, imposing ex post discipline in response to ex ante breaking the new rules. The trick will be to continue pretending that current spending can be relabelled as “investment”. NIESR: Fiscal rules must be reformed Hazel Sheffield The next government must revise the fiscal framework in order to raise living standards and unlock spending on health, infrastructure and housing, according to the National Institute of Economic and Social Research. In January, Keir Starmer ruled out breaking Labour’s fiscal rules to meet its green investment targets if it wins the election. But the current rules are arbitrary, NIESR said, and must be broken or redesigned if the government’s aim is higher growth and higher living standards. The UK fiscal framework was set up with the aim of making public debt sustainable, in other words to ensure that the government is borrowing at a level that means it can meet its payment obligations while having the room to respond to economic shocks. The current framework states that the debt-to-GDP ratio should be falling in the fifth year of forecasts by the Office for Budget Responsibility, and that net government borrowing should not exceed 3% of GDP. NIESR said that such fiscal targets are arbitrary. The Institute for Government has said that successive governments have gamed the fiscal rules, by claiming to be adhering to fiscal discipline while announcing short term giveaways and longer term tax rises or spending cuts that never materialise. Many long-term public investment projects do not make returns within five years, NIESR said, which stymies public investment that could help improve the debt to GDP ratio. To revitalise the economy, NIESR is proposing three pillars of fiscal policy reform. First, including the net worth of the public sector as a target, which provides a broader measure of the sustainability of public debt. Second, discounting public infrastructure investment from the deficit measure, separating it out from day-to-day spending. Third, the government could establish fixed dates for fiscal events like the budget, in the same way that interest rates are decided by the monetary policy committee at set dates in the calendar. This would insulate budget announcements from short-term political goals, like winning elections, at the expense of long-term economic strategy, NIESR said. Britain’s manufacturers have also issued a manifesto for the warring political parties to digest. Make UK are hoping for a “bold economic vision” that puts the importance of the economy across every Ministerial portfolio. That, they say, would spur growth and help the UK compete with the US and China in the race to develop green technologies. Make UK are calling for five specific measures in the first 100 days of the new government – including a focus on where to stay aligned with Europe, and where to diverge…. Announce a long-term modern Industrial Strategy to underpin all economic policymaking which has cross Government commitment. This should be backed by the re-introduction of an Industry Strategy Council and a new Cabinet Office backed Committee to ensure the implementation of the Strategy across Government Align the UK CBAM (Carbon Border Adjustment Mechanism) with the EU CBAM in terms of timescale and design to provide a level playing field with the EU Commence a root-and-branch review of the Apprenticeship Levy as a funding mechanism, as well as the wider apprenticeship system Re-establish an updated, modern Manufacturing Advisory Service Establish a mechanism for ongoing and active consultation with industry to decide where it is appropriate to maintain alignment with EU regulatory changes or, where opportunities for divergence might apply. Bank of England allots another record amount in short-term repos A Bank of England facility which gives commercial banks cheap access to funds has seen record demand, again, amid worries that the money markets are running short of cash. The BoE allocated over £17bn of one-week funds in its latest short-term repo operation this morning, the largest take-up since the facility was launched in October 2022. The repo operation allows banks to borrow from the BoE at Bank rate, in return for handing over high-quality assets as collateral. It is meant to keep short-term market interest rates in line with Bank Rate by ensuring banks don’t need to pay more to access reserves in the money markets. But there are concerns that banks are tapping the short-term repo because market liquidity which is being drained as the BoE continue to sell bonds acquired through years of quantitative easing (QE). This “quantitative tightening” (QT) scheme involves the Bank selling bonds back to the market, leading to a drop in liquidity. The Financial Times reported yesterday that analysts at Barclays, Bank of America and NatWest believe this scarcity of cash could cause the BoE to slow down the process of shrinking its balance sheet when it reviews its QT policy in September. In another boost for Europe’s economy, euro-area economic confidence has improved this month. The European Commission’s monthy sentiment indicator has risen to 96 this month, up from 95.6 in April. However, economists had expected a larger rise. Readings for industrial confidence also ticked up. Europe’s “strong job market” is driving its economic recovery, says Bert Colijn, senior economist for the eurozone at ING: Following this morning’s drop in the eurozone unemployment rate, Colijn says: Unemployment was already sitting near historic lows during the period of stagnation. In April, unemployment dropped from 6.5 to 6.4%, once again reaching the lowest point since the eurozone was founded in 1999. The strong job market is helping the economic recovery as it keeps wage growth elevated, and has allowed purchasing power to recover after the inflation spike. The question is whether the economic pickup will result in lower unemployment from here. We doubt it. Expectations for employment for both services and industry have actually trended down despite better economic prospects and we expect that the modest economic recovery will largely result in productivity gains. Eurozone unemployment rate falls to record low Newsflash: unemployment across the eurozone has fallen to a new record low, a week before Europeans head to the polls for the European Parliament elections. Statistics body Eurostat reports that the seasonally-adjusted unemployment rate across the euro area fell to 6.4% in April, down from 6.5% in March. That’s the lowest since the single currency was created, Eurostat data shows. In the wider EU, the jobless rate remained at 6%. This suggests that the higher interest rates imposed by the European Central Bank to fight inflation is not hurting the labour market. Eurostat estimates that 13.149 million persons in the EU, of whom 10.998 million in the euro area, were unemployed in April, adding: Compared with March 2024, unemployment decreased by 103 thousand in the EU and by 100 thousand in the euro area. Compared with April 2023, unemployment increased by 95 thousand in the EU and decreased by 101 thousand in the euro area. Across the EU, unemployment was highest in Spain (at 11.7%) and Greece (10.8%) in April, and lowest in Czechia (2.7%) and Poland (3%). At its peak, during the eurozone crisis in 2013, eurozone unemployment rose over 12%, but then fell steadily – before a brief spike in the Covid-19 pandemic. Back me for low interest rates, Rishi Sunak claims The Bank of England has been doing its best to keep out of the general election campaign. Earlier this week it cancelled all speeches by its policymakers for the duration of the upcoming 4 July General Election, meaning we shouldn’t hear any public statements from central bank officials until the public has voted. That would prevent the Bank committing news, by commenting on the state of the economy, or hinting when it might lower borrowing costs. Now, though, Rishi Sunak has piled into the void by claiming that a vote for the Tories is a vote for cuts to interest rates. Sunak told The Times: “Of course it is, because we are the party who has committed to bringing down inflation, which is a necessary condition for bringing down interest rates. And I think people can see we have delivered that. And that allows us to think about the future in a more positive and confident way.” Inflation is a funny beast – politicians are desperate to blame global factors when it’s going up, but rush to take the credit when it falls. And either way, as the Bank of England is independent, it gets the credit for controlling prices (and the blame for losing control). Anyway, Labour are warning that they would be starting from a difficult position if they win the election. Darren Jones, Labour’s shadow Treasury minister, ruled out rises to income tax, national insurance or VAT, adding: The fiscal inheritance is going to be really hard, it’ll be the worst that any party has inherited since the second world war. ‘Do not travel’ alert issued after freight train derails A “do not travel” alert has been issued after a freight train derailed on a major route between England and Scotland, PA Media reports. Services are being cancelled and delayed because of the incident on the West Coast Main Line between Carlisle and Oxenholme Lake District on Wednesday night, National Rail Enquiries added. National Rail says: A derailed freight train between Carlisle and Oxenholme Lake District means some lines are blocked. Trains may be cancelled, revised or severely delayed by up to 60 minutes. Major disruption is expected until 14:00. Train operators Avanti West Coast and TransPennine Express issued the “do not travel” alert, urging passengers not to attempt to use their services for journeys between Preston and Scotland on Thursday. Ticket holders can delay journeys until Friday or travel with other operators. UK cost of living squeeze eases The cost rises hammering UK households has slowed in the last quarter. The Office for National Statistics reports that UK household costs, as measured by the Household Costs Index (HCI), rose 4.4%, slowing from the annual rate of 5.3% in January 2024. That chimes with the latest inflation data, which showed a slowdown in price rises this year. Interestingly, higher income households saw the highest inflation rate. Here’s the details: By comparison, household costs rose 5.0% for high-income households (decile 9) and 3.9% for low-income households (decile 2). By tenure type, mortgage and other owner occupier households had the highest annual inflation rate of 5.5%, reflecting rising mortgage interest payments; by contrast, the rate for outright owner occupiers was the lowest at 3.3%. Private renters’ HCI inflation rate was higher than social and other renters, at 4.6% and 4.3% respectively; this follows a period between October 2023 and January 2024 where the two groups had similar inflation rates. Non-retired households continued to experience a higher annual rate of inflation (4.8%) than retired households (3.4%). Households with children’s annual inflation rate fell to 4.8% while households without children fell to 4.2%. Zoopla: more homes for sale will keep prices in check In the property sector, the number of homes for sale in the UK is at the highest level in eight years, according to website Zoopla. Zoopla reports that the supply of homes for sale is 20% higher than this time last year, with £230bn worth of housing for sale, up £45bn on this time last year. This is likely to keep a lid on house price rises this year, Zoopla suspects, even though the upcoming general election could slow the pace of new sales in the coming weeks. Zoopla also reports that there were modest house price falls across Southern England, as the north/south divide in annual house price growth continues. They say: This split in house price inflation is most evident at a city level with the the strongest house price growth in Belfast (+3.6%), Burnley (+2.5%) and Bolton (2.4%), and the highest house price falls in Ipswich (-3%), Hastings (-2.7%) and Norwich (-2.4%).