When Bank of England Governor Mark Carney presents his quarterly economic forecasts this week, he faces a challenge similar to that faced by his colleagues at the Federal Reserve: how to convey the probable path of policy as stronger-than-expected growth moves up the likely date for reaching thresholds for considering an interest-rate increase.
In the U.S. that test falls to Janet Yellen, who takes center stage on Capitol Hill to deliver her first Fed semi-annual monetary policy report to lawmakers. The first female chairman of the central bank testifies on the economy days after Labor Department figures showed the weakest two months of job growth in three years.
Retail sales will showcase the week’s U.S. economic data. Economists project purchases were little changed in January as harsh, winter weather blanketed much of the nation and kept consumers from venturing out to auto dealerships and malls.
More signs of slower growth may emerge in China as reports are forecast to show slower export growth and a narrowing of the trade surplus in January. In Australia, a report may show the unemployment rate last month increased to the highest level since June 2009, while Argentina introduces a new inflation gauge.
BANK OF ENGLAND FORECAST
-- Carney will present quarterly forecasts on unemployment, growth and inflation at a press conference in London on Feb. 12. Policy makers are assessing the second phase of forward guidance, now that stronger-than-expected growth has moved up the likely date for reaching their threshold for considering an interest-rate increase.
-- The unemployment rate has fallen much faster than the BOE forecast in November, and now stands at 7.1 percent, just above the 7 percent threshold for considering raising the key interest rate from its record-low 0.5 percent. The bank’s November projections showed unemployment staying above the threshold at least until 2015.
-- Carney has said he sees no “immediate” need for a rate increase, and at the press conference will likely explain either how the guidance framework will be changed, or why it should remain. “Measures of underemployment, and a possible reduction to the medium-term unemployment rate estimate, are expected to feature prominently in the next phase of forward guidance -- some of these measures still indicate plenty of slack,” Sam Hill, an economist at RBC Capital Markets in London, said in a research note.
-- Yellen, in her first public speaking event since being sworn in as chairman on Feb. 3, may add more details about the Fed’s intent to keep the benchmark lending rate near zero “well past the time” the unemployment rate declines below 6.5 percent, as it said in its January statement. A Labor Department report on Feb. 7 clouded the outlook for the economy and Fed policy makers. A 113,000 increase in hiring in January fell short of the median forecast in a Bloomberg survey calling for a 180,000 advance. At the same time, the unemployment rate fell to 6.6 percent, the lowest since October 2008.
-- After quickening in the last half of 2013, the economy has shown signs of cooling. Retail sales in January were probably little changed as colder-than-normal temperatures and snowfall led to fewer car purchases and trips to the mall. Sales excluding auto dealer are projected to rise 0.1 percent after a 0.7 percent gain, economists forecast before the Feb. 13 Commerce Department data.
-- “The biggest challenge is that Yellen will have to decide when and how fast to return interest rates to a more normal level of around 4 percent,” Paul Ashworth and Paul Dales, economists at Capital Economics, said in a research report. “The focus of this week will be Yellen’s testimonies, but the economic data releases may strike a soft tone. Falls in auto and gasoline sales probably dragged down retail sales in January, while unusually bad weather probably restrained industrial production in the same month.”
-- “Start with the normal post-holiday discounting to help clear out stock in what was already a weak pricing climate, add in some brutal winter weather, and sales volumes are bound to be adversely impacted,” Richard Moody, chief economist at Regional Financial Corp. in Birmingham, Alabama, said in a research note. “The question, of course, is just how adversely. We expect grocery store and online sales to have turned in decent gains but look for most forms of discretionary spending to have been weak.”
-- In China, export growth probably slowed to 1 percent in January from a year earlier and the trade surplus narrowed to $24.1 billion, economists estimated ahead of data due Feb. 12.
-- The report holds a “substantial risk of disappointment,” Annette Beacher, the head of Asia-Pacific research at TD Securities in Singapore, said in a research report. “With this year’s Chinese New Year holidays from late January-early February, we guesstimate that January trade will be somewhat seasonally lower. As January was a normal trading day last year, there are risks of substantial year-on-year negative prints.”
-- Australian unemployment probably rose to a 4 1/2-year high of 5.9 percent in January, economists predicted ahead of government data due Feb. 13. The jobless rate has held below 6 percent even as the country recorded its biggest loss of full-time jobs last year since 1992, as the participation rate declined.
-- “We think the risk is that it could go to 6 percent, but this would require a lift in the participation rate, which trended lower consistently in 2013,” said Paul Brennan, chief economist in Australia for Citigroup Inc. in Sydney.
-- Argentina’s government on Feb. 13 will publish a new national consumer price index to replace the current benchmark greater Buenos Aires index a year after the International Monetary Fund censured it for misreporting economic data. Inflation, according to the national statistics agency, was 10.9 percent in 2013 compared with private estimates of 28.4 percent.
-- “The market doesn’t have too many expectations that the government will come out with an index that will reflect reality, but thinks that at least it will be more accurate than the current one,” said Juan Pablo Fuentes, an economist at Moody’s Analytics in West Chester, Pennsylvania.
-- “It should be good for the market in general because if you have a better credibility in your indexes it should help relieve some of the pressure from the IMF and the animosity Argentina receives from international organizations,” said Alberto Bernal, head of fixed-income research at Bulltick Capital Markets in Miami.
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