1、 / 10 September 2010/ 10-36 Overview Page 2 Public debt, money supply and inflation Focus France: Is the decline in unemployment sustainable? Page 3 According to the French statistical office, INSEE, the jobless rate in metropolitan France fell 0.2 percentage points to 9.3% in Q2 2010. INSEE also re
2、cently released detailed employment figures suggesting that the upturn in job creations is not yet strong enough to trigger a sustainable decline in the jobless rate. Whereas surveys suggest that economic growth remained relatively dynamic over the summer, we expect a slowdown towards the end of the
3、 year. Consequently, the unemployment rate is thus rather likely to level off in the quarters ahead. Recently released and forthcoming data and surveys Page 6 Jean-Luc Proutat 10 September 2010 10-36 2 economic- Overview Public debt, money supply and inflation Could the aftermath of the crisis be in
4、flationary? Judging by recent bond market trends, the answer is clearly no. In the eurozone, the 10-year yield on AAA-grade government securities dropped to 2.5%, the lowest level in the post-war period. Yields on US Treasuries have also fallen sharply and are fluctuating at similar levels. The yiel
5、d spread with indexed bonds, a good measure of the markets inflation expectations, is very narrow at 1.5% in the medium-term range (5 years) and barely 2% for the long end (10 years). There is less fear of rampant inflation than prolonged anaemia. In the United States, the biggest pessimists warn of
6、 a Japan syndrome in which the government and the central bank are incapable of restarting the economic machine. In their eyes, near zero interest rates and high public deficits could coexist for years with a slump in activity and prices. Yet the policy mix adopted to deal with the crisis, the curre
7、nt combination of monetary and budget policy, breaks the rules against monetising debt, a practice reputed to be highly inflationary. The US Federal Reserve has purchased as much as $475 billion in public-sector bonds (government and federal mortgage agency securities), which amounts to a quarter of
8、 the deficit. Though announced as temporary, these operations are bound to continue. The Bank of England went even further, purchasing 200 billion in a programme that covered the totally of public borrowing requirements in 2009. As to the European Central Bank (ECB), it took some liberties with arti
9、cle 104 of the Maastricht Treaty, which prohibits it from financing the debt of member governments. Nonetheless, the size of these operations (61 billion in addition to a similar amount to purchase covered bonds) was limited compared to those in the US and the UK. For inflation to arise, the funds c
10、ontributed by the central banks in exchange for these security purchases would have to end up in the money supply, that is to say, at least, in the pockets of consumers and investors. In this case, the old quantitative theory of money supply (first expressed in 1568) would probably come into play: t
11、he increase in sources of payment for the same quantity of goods and services would tend to drive up prices. Borrowing nations would do well of course since nominal revenues would swell in keeping with debt. From the John Law system set up in 1720 to the printing of Assignats, monetising debt was lo
12、ng the accepted way of getting by. The big difference with the current period is that inflation, like money supply, is no longer decreed. Money supply aggregates like M2 in the United States and M3 in the eurozone remain flat or have barely picked up. Private sector lending, the main counterpart of
13、money supply, is recovering very slowly, even though banks have abundant central banks liquidity. This is undoubtedly due to the determination of companies and households alike to reduce debt, especially those strapped with excessive debt loads. Americans are repaying more loans than they are contra
14、cting new loans, a highly unusual situation inherited from the crisis. The latest Flow of Funds statements indicate, for example, that net debt reduction by households amounted to $330 billion in Q1 2010 (on an annualised basis). The household savings rate held close to 6.5%, which is relatively hig
15、h by American standards. In the eurozone, trends are somewhat more favourable: the distribution of home loans has picked up again and companies are turning more readily to banks for financing. Just like inflation can no longer be decreed, governments can no longer create money to cover their debt, e
16、ven when partially repurchased by central banks. Doing so would require working outside the financial system and operating by injunction, which is inconceivable without torpedoing our institutions. If the future is inflationary, it is bound to be troubled. If it is not, major efforts will be needed
17、to control debt. In either case, debt will not simply vanish. Frdrique Cerisier 10 September 2010 10-36 3 economic- Focus France: Is the decline in unemployment sustainable? According to the French statistical office, INSEE, the jobless rate in metropolitan France fell 0.2 percentage points to 9.3%
18、in Q2 2010. The job market participation rate declined in Q2, and more generally over the last quarters, limiting the rise in unemployment. INSEE also recently released detailed employment figures confirming that the upturn in job creations is not yet strong enough to trigger a sustainable decline i
19、n the jobless rate. Whereas surveys suggest that economic growth remained relatively dynamic over the summer, we expect a slowdown towards the end of the year. Next year, growth will have a hard time maintaining the 2010 rate of 1.5%. Consequently, the unemployment rate is thus rather likely to leve
20、l off in the quarters ahead. INSEE recently announced that the unemployment rate declined by 0.2 percentage points in Q2 2010 after a Q1 decline of 0.1 points. According to employment survey figures, the jobless rate in metropolitan France slipped to 9.3% of the active population last spring, after
21、peaking at 9.6% in late 2009. Including the overseas territories, the decline was identical, with unemployment declining to 9.7% in Q2 2010 from 10% in Q4 2009 (see table 1). Although this improvement followed a period of relatively robust economic growth (GDP rose 0.6% q/q and 1.7% y/y over the sam
22、e period), the news came as a surprise. Eurostat provides monthly estimates of unemployment in France, as for the other eurozone countries. According to these estimates, the unemployment rate in France (including the overseas territories) had levelled off at 9.9% of the active population in recent m
23、onths, before picking up slightly to 10% in June and July (chart 1). The European statistics office bases its forecasts on the number of job seekers applying for work at the French employment office (Ple Emploi), whereas INSEEs statistics are based on the results of a survey collected weekly from a
24、sample of households. France - Unemployment, ILO definition (SA data) INSEE 2009 Q3 09 Q4 09 Q1 10 Q2 10 Mainland Unemployment rate (%) 9,1 9,2 9,6 9,5 9,3 Number of unemployed (k) 2 579 2 588 2 702 2 694 2 624 Mainland + overseas territories Unemployment rate (%) 9,5 9,6 10 9,9 9,7 Eurostat 2009 Ap
25、r 10 May 10 Jun 10 Jul 10 Unemployment rate (%) 9,4 9,9 9,9 10,0 10,0 Number of unemployed (k) 2 739 2 880 2 895 2 907 2 914 Sources: INSEE, Eurostat 1. Comparison of unemployment statistics Sources: INSEE, Eurostat 2. Employment rate 63646566676869702003 2004 2005 2006 2007 2008 2009 2010 201155575
26、961Employment rateMenWomenSource: INSEE Frdrique Cerisier 10 September 2010 10-36 4 economic- INSEE survey is not as favourable as it may seem The difference in these unemployment figures can be explained by taking a broader look at the statistics from the Employment Survey by INSEE. The employment
27、rate (number of people with jobs as a share of the working age population) remained stable in metropolitan France at 63.8% in Q2 (chart 2). This implies that the Q2 decline in unemployment (-70,000) was in fact accompanied by a similar decline in the active population, which suggests that some of th
28、e unemployed became discouraged and stopped looking for work or simply did not enter the job market since jobs are so hard to find. As a result, they were no longer counted as unemployed. It is hard to be certain that all the variations in the participation rate (number of active persons, employed o
29、r unemployed, as a share of the working age population) are due solely to flexion1. However, there is no doubt that after rising rather sharply in late 2008 and early 2009 (+0.8 pp yoy in Q2 2009), the recent downturn in the participation rate (-0.4 pp over the past four quarters, chart 2) has clear
30、ly helped limit the rise in the unemployment rate since mid 20092. Job creations remained weak in Q2 The INSEE also confirmed on Thursday, 9 September, that net job creations in the market sectors, which had begun to recover in Q1, remained moderate and highly localised. Payroll employment rose 0.2%
31、 q/q in Q2 2010, with the net creation of 24,000 jobs, vs 36,000 in Q1 (see table 2). In the construction sector, which destroyed over 46,000 jobs in 2009, employment declined again in Q2, down 0.4% q/q, after levelling off at the beginning of the year. Industrial employment, in contrast, contracted
32、 by “only” 0.5% q/q in Q2, close to the rate at which the sector has been continuously destroying jobs since the beginning of the decade3, and the smallest decline in nearly two years. Lastly, the increase in employment in services slowed slightly in Q2 (+0.4% q/q, with 47,000 job creations, vs 61,0
33、00 in Q1) and remained highly dependent on the rebound in temporary employment (+28,000 vs +29,000 in Q1). 1The term used for the impact the job market situation can have on the size of the active population. During top-of-cycle periods, people have a much higher chance of finding work, which encour
34、ages some to join the ranks of active job seekers. The opposite is true during cyclical downturns. 2After taking into account this trend and the results of the employment survey, Eurostat could lower its estimate of the unemployment rate in France in its forthcoming publications. 3-0.4% q/q or an av
35、erage decline of 1.6% a year between 2001 and 2007. 3. Participation rate 69707172737475762003 2004 2005 2006 2007 2008 2009 2010 201161636567Participation rateMenWomenSource: INSEE France: Non-farm private payrolls Q4 09 Q1 10 Q2 10 Q2 10 (end of period employment) q/q q/q q/q y/y % % % k % k Marke
36、t sectors : 0,0 0,2 0,2 24 -0,2 -27 Industry -0,9 -0,7 -0,5 -17 -3,6 -122 Construction -0,7 0,0 -0,4 -6 -2,1 -30 Services 0,3 0,5 0,4 47 1,1 125 of chich temporary employment 5,2 5,9 5,3 28 23,1 103 Non-market sectors 0,6 0,2 0,1 2 1,7 32 Total competitive sectors 0,0 0,2 0,1 26 0,0 4 Source : INSEE
37、 4. Quarterly contribution to employment growth in market sectors -1,5-1,0-0,50,00,51,01,593 96 99 02 05 08-5-4-3-2-1012345Industry ConstructionServices (excl. temp. work) Temporary workprivate pay-rolls (% y/y, rhs)q/qSource: INSEE, BNPP calculations Frdrique Cerisier 10 September 2010 10-36 5 econ
38、omic- All in all, the current momentum of the job market recovery seems fragile and is unlikely to be strong enough to fuel a sustainable decline in unemployment. Whereas surveys suggest that economic growth remained relatively dynamic over the summer, we expect it to begin slowing towards the end o
39、f the year. It should slow even further in 2011 considering the budget consolidation measures to be implemented in France next year as well as the more moderate growth rates expected in the other eurozone countries, which will have a negative impact on foreign trade. Even assuming a relatively rapid
40、 slowdown in productivity gains (+1.7% yoy in Q2 2010) towards pre-crisis levels4, the sluggish pace of job creations in the market sectors this year could weaken in 2011 (see chart 5). We estimate the average annual increase at 0.2% next year after 0.1% in 2010. 4This indicator compares GDP to payr
41、oll employment solely in the market sectors. Between 2000 and 2007, it rose at an average annual rate of 0.9%. 5. GDP growth and employment -4%-3%-2%-1%0%1%2%3%4%5%95 97 99 01 03 05 07 09 11GDPNon-farm private payrollsimplied labour productivityy/ySources: INSEE, BNPP estimates OECD countries 10 Sep
42、tember 2010 10-36 6 economic- Recently released and forthcoming data and surveys United States To watch from to 13 to 17 September In July, retail sales rose 0.4% m/m in value terms, bolstered by the increase in purchases of cars and gasoline. Automobile sales could contract slightly in August, in l
43、ine with the decline in unit sales. In contrast, higher gasoline prices surely continued to lift retail sales in value. The least volatile components of retail sales are likely to rebound in August. Sales trends have been particularly weak in recent months (annualised rate of -0.6% 3m/3m), even thou
44、gh household revenue has shown some resilience (thanks notably to significant wage increases in August). All in all, retail sales probably increased in August (estimated at 0.3%; figure to be released on 14 September). In July, industrial production rose strongly (+1% m/m) and the signals are still
45、generally favourable for August. The PMI index taken from the ISM survey rose slightly from one month to the next (from 55.5 to 56.3), notably due to a more favourable assessment of production, while the total number of hours worked in the manufacturing sector increased slightly (+0.1% m/m). High su
46、mmer temperatures probably drove up energy production (air conditioning). These indicators suggest a slight increase in industrial production in August (estimated at 0.3%; figure to be released on 15 September). In July, consumer prices rose 0.3% m/m due to a slight increase in core prices and sharp
47、ly higher energy prices. Energy and food prices, the volatile components of the index, surely rose again in August. In contrast, the core inflation index is unlikely to have fluctuated much, in keeping with the underlying trend towards moderation (+0.9% y/y). In the end, consumer prices could have r
48、isen by 0.3% m/m, bringing the inflation rate to 1.2% (figure to be released on 17 September). Key price determinants do not suggest an upturn in inflation in the quarters ahead. Corporate pricing power and employee bargaining power continue to be constrained by sluggish demand and high unemployment
49、, while rent has come under pressure from the absence of a recovery in the housing market. From 3 to 10 September ISM surveys EcoFlash ISM - manufacturing June July August 10-348 PMI 56.2 55.5 56.3 10-353 Production 61.4 57.0 59.9 New orders 58.5 53.5 53.1 Employment 57.8 58.6 60.4 Prices 57.0 57.5 61.5 ISM - non manufacturing NMI 53.8 54.3 51.5 Activity 58.1 57.4 54.4 New orders 54.4 56.7 52.4 Employment 49.7 50.9 48.2 Overall (M&N)
