Would Bernanke like higher US unemployment in August?

6th September 2012

US payroll employment is an overrated economic statistic – the jobs tally is, at best, a coincident indicator of the economy while the "noise" element of early estimates is high. The August figure to be released on Friday, however, deserves attention because of its likely influence on whether the Fed launches QE3 next week. While forecasting is hazardous, there are several reasons for thinking that risks lie to the downside of the 125,000 rise expected by the consensus, according to Thomson Reuters:

Continue reading…


More from Simon Ward:

Are global business surveys bottoming?

UK money acceleration argues against MPC easing

Rising risk of more King letter-writing

To receive our free daily newsletter sign up here

The Financialist

59 thoughts on “Would Bernanke like higher US unemployment in August?”

  1. Andy Zarse says:

    Hi Shaun, this week Tesco Bank launched a 3 year fixed rate @1.74%. Good for those who qualify, but it’s worth pondering that pre-crunch any fixed rate set at 1.24% over base would have had been laughed out of court by the market as a total rip-off…

    1. Anonymous says:

      Hi Andy

      Times change eh? Mind you Tesco Bank are also offering a 2.2% fixed rate for savings over a 3 year term. Interesting maths there….

      Perhaps they plan to draw some money out of the Funding for Lending Scheme,they haven’t as of the last published data but that only takes us up to the end of 2012.

  2. Mike from Enfield says:

    Hi Shaun,

    I don’t doubt that for the type of people journalists & politicians invite to their dinner parties, house prices probably are a hot topic…but for the rest of us? Really? I can recall just one case in the last 30 years when somebody smugly informed me that his house was ‘earning him more than his job’.

    I’d also accept correlation between rising house prices & the chances of the incumbent government getting re-elected. Correlation…but causation? Maybe people really are that shallow but isn’t it more likely that, as you say in your article, rising house prices are a harbinger of an improving economy in general and that desperately trying to fiddle the housing market is, at best, missing the point.

    1. max says:

      Good point Mike. But LibLabCon politicians really ARE clueless.

      Actually we should restrict multiple house purchases and non-resident foreign purchases, which really are nothing more than SPECULATION on rising prices and rental yields, through more aggressive taxation or legislation.

      Will they do it?? No. The banks are bankrupt if prices fall. 🙁

      1. MS says:

        Why would you restrict multiple house pruchases and non-resident purchases? The ideal is to have the market find the optimal price via supply and demand. Neither artificially lowering nor raising price/demand/supply is of any benefit to the economy as a whole, generally speaking. The optimal spot is exactly where unfettered with supply and demand lands you. To artifically slash demand by barring potential buyers out will indeed likely benefit the first-time buyer (in the short term), but there is absolutely no benefit to the economy as a whole.

        What the UK really needs is some bank reform, and now would be a good time to do it. In fact, the banks should have been allowed to go bust like any other insolvent business. What is essentially being done right now is investment into an already insolvent business — I’m sure that will net a great ROI. The UK may get out of this yet, but it certainly won’t be due to the government’s brilliant policies.

        Also, is it just me or does “Funding for Lending Scheme” sound exactly something that came straight out of a Soviet Union history book?

        1. max says:

          thanks for your reply MS.

          In my opinion, the problem is that the ‘optimal price’ is artificially regulated by the government and BoE.
          It is not a free market, and there is not unlimited number of homes in UK due to space restrictions.

          Therefore if, for example, a rich country’s wealth fund decided to buy up all our land and property, there would be none left for us and the demand would be enormous.

          The amount of immigration has also been set by the EU and so is also HEAVILY REGULATED, this increased immigration plus the GREEN BELT REGULATION plus the limitation on the amount of land available means it is not a free market.

          I really think we need to care for the young and the next generations so that we can promote real business growth (not growth of BTL landlords) and a home over everybody’s head, not paid for by HOUSING BENEFIT but by everybody’s labour.

          1. Anonymous says:

            Housing benefit is a curse. Once started, that sort of scheme is extremely hard to stop. Even limiting it to a very high number seems impossible to judge by all the moaning that’s going on. HB reform is essential and urgent.

          2. MS says:

            The problem is the economy, once it begins to recover, first-time buyers will have the confidence, income, and credit availabilty to actually purchase houses. The real problem with all the housing subsidies is not so much that the prices are being kept artificially high, but rather that copious amounts of taxpayer money is being effectively wasted in the process. Also, as barncactus says, once you introduce subsides, they rarely find their way out, unfortunately.

            As for foreigners, this is entirely a matter of immigration; as long as you’re letting them in, it makes no sense to stop them from buying houses. Also, I see no problem at all with selling houses to foreigners — after all, they’re paying for them. At any rate, it’s not harmful to the economy, although it may well be for anyone wanting to buy a house in London.

          3. max says:

            Hi MS. I merely meant ‘non-resident’ foreigners. NYC for example puts a big tax on empty property, but I would go so far as to put an annual tax on ownership for non resident foreign nationals. That would put a stop to all the safe haven stashing of corrupt greedy money into central london property.

          4. Anonymous says:

            Hi MS

            In theoretical economics then a subsidy should be reviewed when the costs exceed the benefits along the lines of Pareto optimality. Meanwhile in the actual world I remember reading some years back that in practice to change things the benefits must be treble the losses as those who are losing will shout much louder than those who are winning.

            This backs up the point of once a subsidy is introduced why they are so rarely reversed,

      2. Anonymous says:

        Not all foreign purchases are speculation. Many are safe haven purchases by people with massive chunks of cash that have been acquired by dubious means in dictatorships. They are insuring themselves against the need for a very rapid exit from their normal country. Meanwhile the house can be rented out or occupied by a relative.

        1. max says:

          exactly. SAFE HAVEN purchases using money of dubious means.
          preventing local people from having an affordable place to buy.

      3. Anonymous says:

        Look at how successful economies manage housing. Germany allows the municipalities to decide on planning and they benefit from building (more revenue). Buy to let is tamed by rent controls and allowing everyone an adequate supply of affordable building land.

        The British are in no position to criticize non-resident foreign purchases – they bought plenty in Bulgaria, Spain, Florida and so on. Houses are a relatively safe investment – especially if you buy low when priced are depressed. Banks and bonds are a risky way to lose money in real terms (with the chance of another Lehman Bros wiping you out) and even share investment seems to reward failing CEOs better than the shareholders.

        PS. I regard UK prices as overvalued & recently sold up from the South East.

        1. max says:

          I would never buy in Bulgaria, Spain, Florida or anywhere unless I really wanted to live there. I think it is unethical as I don’t believe in rich tourists putting the locals out of a market they need to live.

          Even in cornwall, whole communities are disappearing as all the rich from London are buying up their homes to use as an occasional holiday home. This is not good for society. Society should not be all about making a quick buck for oneself.

          Many countries restrict purchases to natives or residents. We are one of the most open in the world and furthermore, one of the most honest where you won’t get ripped off and all your money stolen, that’s another reason the world’s super rich want to INVEST here.

          No disrespect about UK prices but, I thought London prices were overpriced 3 years ago. They are now 30% higher !!!!! The market can stay irrational for longer then we can stay solvent it seems. 🙂

          1. Anonymous says:

            I regard supply restrictions as the major cause of the UK’s housing problems. At the other extreme, Spain’s banks extended huge amounts of dubious finance stoking a boom that has resulted in oversupply.

            I strongly refute your assertion that “rich foreigners are pricing the locals out of the Bulgarian market”. Bulgaria does not have limits in planning, so locals can self build whatever they want. The tourist complexes should provide higher quality residences than the majority of locals have (we do), but the locals benefit from construction, tourist and service jobs. In a country with high unemployment – any work is good work.

            Disclaimer – I have a property business

          2. max says:

            ExpatInBG. Apologies, I don’t know Bulgaria at all. But it has happened in many countries.
            You are right about supply restrictions, particularly in London. But if you want to live in Zone 1 London, there is only a limited supply and they are mostly snapped up by the corrupt and thieving of the world these days.

            My point is that homes should be for living in. Not investments. London has become like a bullion vault or stock exchange for the worlds rich. It should be a place to live and work and do real business to drive our economy.

          3. Anonymous says:

            Yes, supply & demand isn’t social justice. Even Munich has seen big price rises based on demand, despite the rental laws being very landlord unfriendly.

            Maybe some well designed tower blocks with decent rules from a tenants association would increase supply without the problems of the 60s council built tower blocks. London suffers from substandard accommodation, often paid for by housing benefit.

  3. Anonymous says:

    Sean – they don’t want to increase house building. They want to push down on supply to try and get the boomers to exit the market on a high to cover for the fact that the majority have no pension provision. This demographic decide *entirely* who gets into Number 10. That’s all they care about – ideology is long gone.

    I disagree with the other poster – I think people in the UK are very shallow, especially those 50 plus. Who can blame them – how many people have saved 400K in their lives? Yet asset appreciation for most on the SE has surpassed this.

    I think people are looking at this “arse about tit” if you’ll pardon the phrase. The UK began pumping houses under Labour because they have no real alternative for “growth”. Now we are painted into a corner – we cannot let prices fall without the banks imploding, yet we also have no path to real growth – so we double down again with help2buy. This wasn’t really a choice – we have no alternatives hence the “choice” to stop pumping house prices isn’t really there. Unless we chose lower living standards now rather than later.

    This will buy LibLabCon another electoral cycle before someone like UKIP gets in. That is as far as they care to see. Only the public waking up (or reality from outside via a run on GBP) can break this cycle. Either way will hurt, as reality generally does.

    1. forbin says:

      ok given the choice at the time of getting a rediculus mortgage at the time that cost 700-1000GBP and at the same time put away 300-400GBP or more into a pension pot was economically feasable at the time – I should know!

      Dont blame my generation for being put into a bind which party was or am I suppose to vote for to change any of this ? well, any ?

      economics in this country have been tied to rising house prices since the Thatcher era, all parties invoked it !

      now as you and others pointed out , we have zombie banks that if the house price correction occurs will be busted big time. There is a reason for the statement – ” governance of the people by the banks for the banks” you know 🙂


      Popcorn – for the show that never ends….

      1. Anonymous says:

        I don’t think you are representative of the population. You are reading an economics blog – that puts you in what, 2% of the population? If that. Secondly you didn’t say the young should just work harder and that they are all lazy. That takes us down to 0.5%. Again I’m being conservatvie.

        That leaves us with “the rest”. They love it. As Heath said in the Telegraph recently “House prices are rising and we love it”. There is something *very* wrong with the UK.

        1. forbin says:

          good god he said that ? I’ve never understood why every increasing house prices can be “good” . It stops my kids and my friends kids from getting a house.

          the young in the most part that I have met are not lazy, dis-advantaged yes , getting a job is harder that at any time in the past 50 years , not just here but in the rest of Europe. Getting a house whilst having your wages suppressed even harder

          and for having my own wages suppressed means I have a hard time as well.

          btw 1000GBP in 1990 at 15-17% interest rates not today

          at the time we ‘re we told also to save for the pension at 300-400GBP rate as well . I pointed out it wasn’t and didn’t happen

          the smart money went into buy to let , rode the housing boom and have a number of different properties now for which the Gov. supply a nice rent.

          more fool me for not joining them


          PS: if I’m in the top 2% and my finances are toasted got admit then they everyone below me is well an truly stuffed then !

          1. Anonymous says:

            Well, to be clear Heath said that in the context that the Brits are nuts / greedy. He was not supporting this view, simply commenting on it.

            I’m sure everyone in the 50->65 group, defined benefit aside, are having a hard time. I’m also confident that this group will have a *very* hard time as most of their wealth is a chimera. That’s what is so frustrating – it’s only their own greed that means they cannot see they are being played like a fiddle. The house price inflation glasses make everything sunny.

          2. Anonymous says:

            OK, I am in that age group. Not everyone has realised unearned capital gains from housing. I actually paid for my house from my savings and I now have no idea what it’s worth and honestly, apart from rebuilding costs for insurance, I don’t care. I don’t want to release my ‘equity’.. What I do know is that when I need care at the end of my life, I will be selling the house. That’s the way things go in the UK, and perhaps it should be.

          3. Anonymous says:

            Must be nice to be able to pay for your care by transferring an asset you worked for over N years to some poor sap who will have to work 2*N years for it who will not be able to save for a pension or care costs due to their exorbitant mortgage costs!

            Your post is perfectly illustrative of the order of things.

          4. max says:

            absolutely correct @progrock. “I’m alright jack keep your hands off of my stack”

          5. Anonymous says:

            Yeah – it goes to show how deep the sense of entitlement runs. It’s one thing to blurt that kind of thing out in a heated verbal debate, but to sit there and *write* it, then hit post. It’s clear the other poster has, like most of his generation, a total blind spot when it comes to filling their boots.

            They’ve been farming the kids for so long it just seems as natural as breathing.

    2. Anonymous says:

      Absolutely right they don’t want to increase house building. The royal family & the church are large landlords.

      The planning system prevents individuals from building their own affordable homes, big companies game the planning system to reduce competition while putting up ugly little boxes with the minimum insulation they can get away with.

      The broken political system is down to “first past the post”, which allows commons majorities with 35% of the vote.

      1. Anonymous says:

        Agreed. We must *never* have price discovery via looser planning laws! Never I say!!!

        Ingredients for generational serfdom:

        Simply restrict supply to create more than one buyer per home, then allow totally loose credit (oh the irony!). Then let stew for 30 years.

        If you would like a more spicy meal then draw up contracts for everyone over a certain age to be paid X GBP per month until death, then deny same said contracts to people under a certain age. Experts call these “defined benefit pensions”.

        Please note you must use old prunes with this recipe. They have to have “gone bad”. If you use “good” prunes they will mix with the above ingredients and you will simply get a homogonous mess, instead of the old prunes floating to the top.

      2. Anonymous says:

        Hi Expat

        You are reminding me of another issue here which is inflation and its measurement. Officialdom is keen to say quality improvements reduce inflation but “putting up ugly little boxes with the minimum insulation they can get away with” is a quality deterioration which raises inflation.

        No wonder they did not put house prices in the new inflation measure to include housing! (For those who have not followed my article on this they put in rents instead in a clear error).

  4. Rods says:

    Hi Shaun,

    Where I live is about 30 miles from central London, in the M3-M4 corridor, this is very much a London commuter belt as well as an area with many hi-tech industries and high employment. Prices have been edging up for sometime and there is quite a lot of new house construction going on. This ranges from infill building, to small and some very large new estates. There is definitely plenty of demand. In the road I live in 3 houses have sold quickly in the last 6 months.

    The rental market is even stronger with houses and flats usually on the market for only a few days and there have been big increases in rental values over the last 12 months.

    Where we have a rising population and the housing market is demand driven where there are good jobs and prospects, people need somewhere to live, so they must be prepared to spend a bigger percentage on having a roof over their heads.

    1. Anonymous says:

      If the government continue to repress house building through planning surely the logical conclusion of “they must be prepared to spend a bigger percentage on having a roof over their heads” will mean all productivity gains are captured by the banks and older people who already own.

      The false scarcity created by planning laws plus near-unlimited credit is forcing people to sell their future. Their only way out? If they force their kids to pledge even more of their lives to obtaining the same asset. Rentier heaven. Plus nailed on lack of wealth generating investment.

      1. Rods says:

        I agree, rationed expensive housing ties up capital that could be invested in creating businesses and real wealth.

        The current London bubble seems to extend outside of London is the point I was trying to make but as you get further away from the London effect, I suspect in many places prices are falling.

        We know that nominal wages fell in March, but what would be interesting is wage rises and falls by geographic area and skill level. Where we do know is that public sector pay was up 1.7% over the last year, so there must have been some quite big falls in the private sector. I suspect the biggest falls have been for the low skilled, low paid that have earnt over the minimum wage where they can be replaced by people on the minimum wage.

        1. Anonymous says:

          Yes, it’s true, in many places the prices are falling, though you can always sell a well-located well constructed, well designed house that’s in good condition. There really aren’t that many of those on the market. Most British houses are frankly rubbish.

        2. Noo 2 Economics says:

          “Where we do know is that public sector pay was up 1.7% over the last year,” Will you point me to your information source for that please?

          1. Rods says:

            The 1.7% is for 2012, the latest figure including the first 3 months of 2013 where I have just done a search has actually fallen slightly to 1.4%.

            This DT link is one of several reporting this:


          2. Noo 2 Economics says:

            Thanks Rods – it would appear this is yet another area of failure for George as he said public sector pay rises were capped to an average of 1% pa for the next 2 years in his Autumn Statement back in 2011!!

          3. Rods says:

            Although pay rises are capped to 1%. I suspect this rise is due to promotion of staff (backdoor wage rises?) and the fact that pay grades have salary scales which is an annual increment until you reach the top of the scale.

            Public sector pay needs to be brought into reality with our current economic situation as pay freezes and pay cuts have been much more brutal in the private sector where many companies have been squeezed by increasing costs, especially business rates and energy, reduced income, especially for businesses selling non-essentials and greater competition where everybody is competing harder for their slice of cake. The 3% increase in employer wage costs with the auto-enrolment for pensions is not going to help on this front.

          4. Noo 2 Economics says:

            Now I can help on this as an ex public sector (and ex private sector for that matter) employee – progression up the salary scales has been banned for all but the lowest paid staff (probably to prevent them drifting into the poverty trap and being able to make successful means tested benefit claims with the associated benefits of free prescriptiions, dental work glasses etc) since July 2007.

            The promotion of staff argument holds water though as some of my ex colleagues have experienced promotions as a result of “cuts” and “reorganisations” although the job they vacated did in fact disappear. I hadn’t thought of the likely net consequence of this until you pointed it out.

            However, as I said I am also ex private sector and most of those ex colleagues have experienced total pay rises of 12% – 13% over the last 5 years whilst the Public Sector ex colleagues (who weren’t promoted) have had a 2% increase over the same period. This isn’t as straight forward as may appear on the surface.

            For my part I left Public Sector 6 years ago, became self employed and I’ve never made so much money for so few hours work!

            My experience and anecdotal evidence seems to fly in the face of all here but there you are. I can’t understand how I’ve done so well (compared to my public sector salary) when I started self employment just at the beginning of what I believe to be the longest depression England has experienced this century or last.

          5. Rods says:

            I worked for the MOD for 10 years at the start of my career and left with a colleague to start our own business, which did very well. As the market was consolidating we sold this and both moved on. I did okay until 2008 when I was running a business with the wrong person at the wrong time and took quite a big financial hit.

            Since then I’ve start again and I’m gradually growing my current business, but it is not easy in the current climate.

            A big problem this country has at the moment are public services that cost far too much and deliver far too little. Spending 49% of GDP with £120bn of it borrowed is not a sustainable position where all UK governments have found it impossible to raise taxes so they collect beyond 40% of GDP. One of the reasons the deficit went up last year (although they massaged the figures to hide this) is that the Government missed most of its tax revenue targets. Much of this was due to high taxes changing people’s behaviour.

            I think Japan and to a lesser extent Italy show what happens when you have no growth and an ever rising debt burden. Things are getting very critical for Japan economically where the current inflationary money expansion can be looked as an act of desperation where they are running out of options. Japan has started the next round of currency depreciation which I’m sure won’t go unanswered by other countries where they are all trying to get a competitive advantage and export more in this race to the bottom!

          6. Noo 2 Economics says:

            Agreed I keep wondering what the authorities of the countries will do when they reach the bottom with devaluation. I guess banana republic inflation will have to go away then as all currencies will be on parity with each other but the way down will be long and very very hard – look at Greece not currency devaluation I know but the internal devaluation continues long after I thought they would bottom out and start to recover and it’s people suffer ever more.

            Ever read Simon Ward’s posts on here?

            They serve as a good counter balance to Shaun’s views – he currently thinks EZ periphery will start recovery in second half 2013. I don’t know who is right between him and Shaun but time will tell.

          7. Noo 2 Economics says:

            Forgot to say, Simon Ward also expects 2% GDP growth for UK this year. I hope he’s right and maybe this will help you too.

          8. Rods says:

            They could both be right as a slowdown in the rate that their economies shrink could be construed as a recovery!!!

            Personally, with virtually all Eurozone economies now in a recession I can’t see any sort of recovery anytime soon.

  5. max says:

    It’s amazing that mainstream media still prints articles like ‘Housing market showing showing signs of improving’ when what they actually mean is ‘housing market becoming unaffordable for those that aren’t lucky enough to have lots of properties but good news for BTL investors’ !!!!!!!

    What a terrible country we live in.

    1. Anonymous says:

      Less of the we max – I’m out in 6 days.

      1. Anonymous says:

        Hope you will keep commenting in future?

        1. Anonymous says:

          Yeah, only hopefully I’ll mellow once I’m not being farmed like one of those emacaited donkeys on Channel 4 adverts.

          1. Patrick says:

            Not wanting to be nosey, but where are you of to that offers a fair and equitable treatment of donkeys?

          2. Anonymous says:

            Canada. Yeah I know it has it’s own issues, but very few places have as little to offer a middle income family as the UK.

    2. Anonymous says:

      Hi Max

      I often think when I read such things, improving for who? Those who own a house yes. But for the first time buyer prices are moving away from them and so things are worse.

      1. max says:

        absolutely Shaun. Why are human beings so foolish.

  6. ian.jones says:

    First the long run average price is based on the long run average interest rate. Rates are well below this so you would expect prices to be higher. Second we need rising prices to cover for stamp duty which is extracting huge sums of equity from buyers and making the economy less flexible, one of Browns key features.

    1. Anonymous says:

      Hi Ian

      Your first statement seems reasonable “First the long run average price is based on the long run average interest rate. Rates are well below this so you would expect prices to be higher.”

      But then how do we account for the US which slashed interest rates too but has house price below the long-run average or the more extreme case of Japan which has had an official interest rate of 0.1% for some time but prices are nearly 40% below their long-run average and still falling?

  7. Midge says:

    “Of course one sector benefits from all of this and it is the banks”.Quite right Shaun.The chancellor is also a great beneficiary.Stamp duty on property purchase and vat on estate agents bill.The cost of solicitor and removals also attracts vat.Any needed work or new carpets adds to his coffers.

  8. Paul C says:

    Hi Shaun,

    I think you might need to stop blogging about UK house prices because it is a red rag to the readership. I have to agree with most postings that an englishman’s home is his castle and the “uk economy” has become so intimately intertwined with housing that it is an unavoidable pre-occupation for the politicians, who know that a whole cohort of baby-boomers (key voters) are not just addicted but financially dependent on this status quo being very much kept in place.

    Other posters make clear how it is the young people that pay the price, only eventually will the decrepit baby-boomers suffer, as they are cared for “inappropriately” in very old age. As you do look to other Euro countries it’s obvious that the younger generations can actually be made to suffer yet worse outcomes – over 50% unemployment!

    In summary then, your analogy of sacrifice at an altar is an excellent call, let us see what we can prepare to sacrifice for the “UK Banker/Boomer/Badger” no-change-here altar in the coming 5 years:

    1) Fair Energy Costs
    2) Fair Food Costs
    3) All effective transport infrastructure (road, rail & air)
    4) Any meaningful upgrade of the built environment for modern performance
    5) Retention of electricity security (brown-outs leading to black-outs)
    6) Any “dirty” manufacturing businesses
    7) Anything below 50% unemployment for folk under the age of 27
    8) Fair-priced money-lending to people who do not have “house equity”
    9) Any kind of societal decency or fair sense of proportion when compared to other modern democracies

    I am unsure of the last one, perhaps Northern European countries do admire our infrastructure and real-estate?

    1. Anonymous says:

      Hi Paul

      I would like to reply to point eight as one of my earliest blogging topics -the gap between official and unofficial interest-rates – has been in the news recently over payday lenders for example.

      From the 14th of December 2009

      “So the biggest part of the UK economy (the consumer) is still operating on the basis of interest rates which are quite different from the official base rate.”

      Yesterday I read this in the Bank of England release

      “The credit card rate (all balances) increased to 10.48%, a 39bps increase on the month.”

      Actually as I type this I wonder if this average rate includes the 0% offers and so is even worse than it looks.

      By the time we get to Wonga et al the base rate looks as Star Wars put it “a place far fare away”

  9. Anonymous says:

    I think the tide has turned and most people realize that the only beneficiaries
    of increasing house prices are the banks and those with more than one property. For the majority of us it makes no difference. It is those who aspire to own who are the real losers.

    1. Anonymous says:

      Hi Mrs Cake and welcome to my corner of the blogosphere

      1. Anonymous says:

        Thank you Mr Richards. Do you provide tea & biscuits?

        1. Anonymous says:

          Sadly not at this stage. But with the advances in 3 d printing who knows as time goes by…

Leave a Reply

Your email address will not be published. Required fields are marked *