The world economy was expanding at a faster pace in August

 According to the J.P.Morgan Global Composite PMI, the wold economy expanded faster in August than in July. The service sector was the growth engine, while manufacturing contracted again. « India saw the strongest growth overall, followed by the US. Rates of expansion were relatively mild in China and the euro area as a whole. » 

US economy: upward revision

 The 34 forecasters, consulted quarterly by the Federal Reserve Bank of Philadelphia, predict that the US real GDP will grow 2.4% in 2024 (median forecast). Their previous estimate was at 1.7 %.

Link to the press release from the Federal Reserve Bank of Philadelphia 

United States: the economic expansion continues, but...

 Flash PMI data from S&P Global show that economic activity continues to expand, in June, in the United States, thanks to the service sector, maunufacturing still showing signs of weakness. Business orders are still on the upside, meaning that July could still be expansionary.

But, the Conference Board Leading Economic Index "declined in each of the last fourteen months and continues to point to weaker economic activity". Conference Board economists forecast a contraction of the activity in the second half of this year and the first  quarter of 2024.

June 23 press release from S&P Global

June 22 press release from the Conference Board

United States risks of recession

 Recession risks are still well present for the United States economy, according to the most recent data from The Conference Board, published March 17. Eight of the ten indicators of the Leading Economic Index gave a negative or flat contribution to that index last February.

US Leading Economic Index

Inflation lessons

In these days marked by inflation, two articles from The Economist allow us to learn from past episodes of accelerating prices. Also, a paper from IMF economists helps to understand wage-price evolution since the 1960s. 

One article looks at the 1980s and retains three lessons: first, inflation can take a long time to come down; second, defeating inflation requires the participation not just of central bankers, but other policymakers too; third, it will come with huge trade-offs. (page 66 of the December 3rd edition)

The other analyses "The great inflation of the 1500s...", the "chaos" associated to it and that lasted many decennies. (pages 18 and 19 of the Holiday specials, December 24th edition). The conclusion: " No matter the cause, societies that let inflation set in should expect more than just their living standards to be debased." You can expect, inter alia, "...weaker states and a debt crisis." 

Still on inflation, a working paper from IMF economists titled "Wage-Price Spirals: What is the Historical Evidence?" (WP/22/221) offers an interesting conclusion:

"Wage-price spirals, at least defined as a sustained acceleration of prices and wages, are hard to find in the recent historical record. Of the 79 episodes identified with accelerating prices and wages going back to the 1960s, only a minority of them saw further acceleration after eight quarters. Moreover, sustained wage-price acceleration is even harder to find when looking at episodes similar to today, where real wages have significantly fallen. In those cases, nominal wages tended to catch-up to inflation to partially recover real wage losses, and growth rates tended to stabilize at a higher level than before the initial acceleration happened. Wage growth rates were eventually consistent with inflation and labor market tightness observed. This mechanism did not appear to lead to persistent acceleration dynamics that can be characterized as a wage-price spiral. 

 It is still too early to say whether the recovery from the COVID-19 pandemic will play out like these past similar episodes. However, an important takeaway from the analysis is that an acceleration of nominal wages should not necessarily be seen as sign that a wage-price spiral is taking hold. Indeed, history suggests that nominal wages can accelerate while inflation recedes from high levels. In fact, on average, this has happened after similar macroeconomic episodes in the past." 

World economy: contraction again in November

World output and new business declined again, and at a faster rate, in November, according to the latest PMI data published December 5 by S&P Global. The good news: price pressures on input and output eased further.

Link to S&P Global press release  

Quebec economy: slowdown in the coming months

 The Desjardins Leading Index lets anticipate a significant slowdown in the pace of growth of the Quebec economy in the coming months. Last June, the economists of that financial institution foracasted a real GDP growth of 3.3% this year. Lets see the extent of the correction to their forecast in its coming update.