Macroeconomics in the spotlight with Linda Yueh

In her monthly appearance on SiriusXM's The Business Briefing, London Business School’s Dr Linda Yueh discussed the Chinese and British economies on February 23 of this year, and then on March 8 Dr Yueh discussed the US nonfarm payroll figures.

Property markets concerns in China

With a remarkable 70 per cent of Chinese household wealth now tied up in real estate, property investment, once the great driving force of the economy, is going into reverse, with 23 per cent fewer housing starts and a decline in private investment. The government in China has belatedly sought to deregulate buying houses – reducing deposit requirements, removing limits on second homes and cutting existing mortgage rates, to help encourage demand. But there is an element that this is too little too late. With prices falling and the bubble burst, the desirability of investing in a second home is much reduced.

Caught somewhat off guard by the Central Bank of China slashing key interest rates again, is there a hint of desperation in their actions, asked The Business Briefing’s anchor, Janet Alvarez?

“There is of course concern, and the government didn’t want to insert too much credit as that would make it cheaper to invest in property and because so many households borrow against their properties they are now stimulating the economy. China should be using fiscal policy such that if your concern that cheaper credit will fuel the property market and more investment and inefficient construction of more properties then the other tool to deploy is fiscal policy,” said Dr Yueh.

A mixed picture for the UK economy

Dr Yueh observed that with the Bank of England acknowledging that the UK had exited a short and shallow recession financial markets were uncertain how to react. A picture is painted of a stagnant economy but with some bright spots such as solid retail sales figures in some parts of the last quarter. There also needs to be further progress on inflation and in tackling wage growth, with an overall need to see more productivity in the economy.

US non-farm payroll figures

Payroll figures for the US came in for February recording 275000 jobs gained but with the unemployment rate inching up to 3.9 per cent.

“It is a good number and not only because it beat expectations of around 200,000 jobs, but 275,000 is actually above the average monthly figures which sits at around 230,000,” said Dr Yueh. “The figure does therefore record a bit of an uptick in terms of the markets and in terms of potentially pricing in a rate cut in June. It is also worth noting that the January payroll number was actually downgraded; it was a blockbuster figure of 353,000 but the revised totals for January and December eventually reported 167,000 fewer posts created than previously thought.”

The Bureau of Labor Statistics downgraded the new jobs total for January from a blockbuster initial reading of 353,000 to 229,000. December’s figure was cut from 333,000 to 290,000. The February data indicated that jobs growth remained concentrated in the services sector, with significant increases in payrolls in healthcare, hospitality and the public sector.