There have been two events in the last twenty four hours that warrant attention. First was the healthy UK jobs data and what they tell us about about the economy. Second were the latest Fed minutes.
Currently there is much caution about the global economy. And it is in this context that these two key pieces of economic news should be viewed. For both the UK jobs news and the update from the Fed suggest the economic picture - at least in these countries - may be better then the current mood. Also, as we have pointed out in these pages recently, the scale of policy easing at the G20 level - primarily in monetary policy but also now in fiscal terms - is significant and could well have a far more positive growth impact than is generally assumed over the next year.
But let's take the UK jobs news first. Employment reached an all-time high of 31.75 million in June. This is an incredible 74.5 per cent of the potential workforce that is in work; the highest since records began in 1971. Those not in work include students, people not looking for work and of course the unemployed. The numbers unemployed are still far too high, at 1.64 million, but even so the unemployment rate is 4.9 per cent, the joint lowest since 2005.
Also data from July, the month after the Referendum, showed the first monthly fall since February in those seeking job seekers allowance. An 8,600 fall defied predictions of a rise and indicated a still healthy jobs market post the Referendum result.
Sometimes the jobs data can be referred to as a "lagging" indicator, reflecting how the economy was and not is. Thus some may try and play down the significance of these figures, citing instead other recent surveys which have been cautious about prospects.
However, the flexibility of the UK labour market, that we hear so much about, suggests to me that the jobs data may be far more of a "coincident" as opposed to a lagging indicator, and thus gives a fairly good feel for how the economy is now.
The challenge though is whether this is sustainable? Even without the uncertainty triggered by the Referendum, one would have been asking whether such a strong jobs market could continue? Indeed, in wider economic terms, the UK economy has enjoyed seven years of growth and at this stage of the cycle the concern is often that growth will slow anyway. Naturally the referendum result reinforces that because of the near term uncertainty. That being said, the other issue is wages.
If we do see the labour market remaining robust, will wages start to edge up? Average wages rose 2.4 per cent in the year in June, to £501 per week. The annual increase varies considerably, from 8.4 per cent in construction to 2.3 per cent in manufacturing and 2 per cent in services outside the financial sector. With inflation creeping up, the path for wages will be a big focus in the second half of the year.
Perhaps we will see a diverging performance. For many people the strength of the labour market, rising wages and low interest rates will keep consumption underpinned; domestic demand was, after all, the main driver of growth during the first half of the year. In contrast, zero hour contracts or the uncertainty and loss of confidence reflected in recent surveys will mean a more difficult time for some.
Of course the Bank of England has already announced a significant policy boost in recent weeks and a further stimulus is likely in the Autumn Statement. Some may ask whether this is necessary given the jobs report but the answer is yes, as the economy looks likely to lose momentum and slow during the second half of the year. But the jobs data suggests the slowdown may be from a stronger position and that the economy may well prove far more resilient than assumed.
Perhaps this is similar to the US, where the Fed's minutes reflected diverging views about the economy and growth prospects there. Hence the Fed is keeping its options open. That makes sense. Although recent figures show a creeping up in inflation, the balance of risks still supports the Fed waiting. Recently the New York Fed's Dudley implied the market may not be pricing sufficiently the possibility of a rate hike, but for now the market is probably correctly concluding that the Fed will need to see sustained stronger data before it hikes.
Recent US jobs data suggests the economy may have some underlying resilience. Yet at the end of this coming week at an annual gathering of central bankers at Jackson Hole the Fed Chairwoman Janet Yellen will talk on "Designing resilient monetary frameworks for the future".
For now the markets are wondering whether the economy is resilient enough now. It is, but because of a big helping hand from monetary policy. And it is continued monetary policy stimulus, including low rates both in the UK and US, that will likely allow the recent performance of markets to continue.