Recent posts have suggested that the global economy will expand solidly during the second half of 2013 although a slowdown in real money expansion in June warns that momentum could fade at year-end – see here and here.
Strong near-term performance may be reflected in better-than-expected labour market outcomes. The first chart shows the G7 unemployment rate together with a weighted average of consumer survey responses about employment / unemployment in the US, Japan, Eurozone and the UK – a fall indicates improving conditions and vice versa. This indicator has accelerated lower recently, suggesting that unemployment is about to fall significantly.
UK consumers are particularly upbeat, with the net percentage expecting unemployment to rise over the next 12 months at its lowest since 2005 – second chart. This supports the forecast here that the unemployment rate will fall to 6.5-7% by mid-2014, from a current 7.8%. The MPC, in other words, may need to set any unemployment rate threshold well below this range if it wishes to convince markets that rock-bottom rates will be maintained until 2015-16.
