Even Ireland’s economy is enjoying a moment in the springtime sun. So it was surprising to see US economic growth come to a halt in Q1. Yet this was a stall, not the flashing indicator of engine failure. Unemployment fell sharply in April and the US monetary authority continues to reduce its asset purchases (tapering) with no visible sign of increased economic stress.
Within a whisker
The UK economy grew by 0.8% in Q1, meaning it is 3.1% larger than this time last year. We haven't seen growth above 3% since 2007 and this acceleration brings the size of UK output to within 0.6% of its previous peak. Yet the UK economy has not rebalanced in the way once hoped. The service sector is already much larger than it was in 2007, while output in the production and construction sectors are still more than 10% smaller than they were.
However, manufacturing output expanded by 1.3% in Q1. And if April's Purchasing Managers’ Index (PMI) survey is anything to go by, growth could be even better in Q2. The sector's PMI reading rose to 57.3 in April, up from 55.8 in March, flying high above the 50-mark that signals expansion. So manufacturing’s fight back has begun, bolstered by higher demand at home and abroad. Hiring intentions are stronger than they’ve been for nearly three years.
Although output is rising, we’re actually less productive than we were. We produce less per hour or per person employed than we did. Output per hour was 0.3% lower in 2013 than in 2012. It matters, not least because our earnings are intimately linked with our productivity. So weakness in pay growth is at least partly due to poor productivity.
Mortgage approvals eased in March. Compared with February, the 67k approvals represented an 11% fall on the previous month. Alongside this, new mortgage lending also fell. Nonetheless, house prices in April rose by 10.9%y/y, their fastest pace since early 2010 according to Nationwide. It is not clear whether the new rules put in place by the Mortgage Market Review will impose some gravity on the market. If not, the Financial Policy Committee may do so.
A welcome change
Car sales and Dublin property delivered an Irish feel good factor. Ireland's retail sales rose by 9%y/y in March, driven in part by car sales. Meanwhile property prices were up 8%y/y, almost entirely built upon a 14% rise in Dublin. And export demand continues to boost the fortunes of manufacturers. This is all welcome news indeed. Yet with a large debt overhang and unemployment still almost 12%, Ireland's road to a secure recovery has a long way to go.
Blame the cold
US growth all but ground to a halt in Q1, with GDP rising at an annualised rate of just 0.1%. Although bad weather in January dented activity, such a severe slowdown looks odd. The US Federal Reserve took the news in its stride, confirming that it will continue to taper (reduce) its asset purchases. It feels activity has picked up recently and the Q1 number was a blip. Almost on cue, the US equivalent of the manufacturing PMI hit 54.9 in April, up from 53.7 in March.
The US economy created an impressive 288,000 additional jobs in April. Yet even this news is somewhat eclipsed by the unemployment rate falling from 6.7% to 6.3%. The actual number unemployed fell almost three-quarters of a million, with the number of long term unemployed down too. Job growth is widespread across sectors, but is particularly high in the professions, construction and retail (including bars and restaurants). The US consumer is alive and kicking (and indeed eating and drinking).
In contrast with the UK, a little heat is coming out of the US housing market recovery. House prices were unchanged m/m in February according to Case Shiller. Year-on-year growth still looks strong at 13% but that reflects rapid increases in the middle of 2013. Average prices stand pretty much where they were six months ago. Higher mortgage rates likely explain most of the slowdown, evident in the sharp fall in refinancing activity, down 76% from last May (yes, that is seventy-six percent).
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