US growth rate revised up to 3.9% – business liveblog

Over to Paris where talks have begun in earnest between Greek government officials and mission chiefs representing the country’s troika of creditors at the EU, ECB and IMF. Our correspondent Helena Smith reports:

The Greek finance minister Gikas Hardouvelis went into the talks expressing optimism the views of both sides would finally converge - and auditors, in turn, would return to Athens to complete their long overdue assessment of the Greek economy.

“We came to close the book,” he told reporters strolling into the building where the negotiations kicked off in an effort to break the impasse into which they have fallen.

“We have come to to continue the conversation, make progress and continue,” he said, adding that the purpose of the 48-hour negotiations was to “seal the review and bridge differences.”

At the centre of the talks - which may continue through to Thursday insiders say - is the €2.5bn fiscal gap forecast to hit the Greek budget next year. But sources close to the EU, ECB and IMF are hinting that the differences are “wide and varied” and it is still far from certain whether they will ultimately be bridged.

Without further budget cuts, the troika insist there can be no progress with auditors arguing that pensions, in particular, will have to be rolled back further. Hardouvelis, an economics professor and the ruling coalition’s sole technocrat, has argued vigorously against further cuts, saying they will be “counter productive” and, more dangerously, likely to whip up mass social unrest at an especially sensitive time for the government. The Greek team arrived in Paris armed with a €1bn plan of cuts that it hopes will finally satisfy creditors.

On the US confidence figures, Lynn Franco, director of economic indicators at the Conference Board said:

Consumer confidence retreated in November, primarily due to reduced optimism in the short-term outlook. Consumers were somewhat less positive about current business conditions and the present state of the job market; moreover, their optimism in the short-term outlook in both areas has waned. However, income expectations were virtually unchanged and gas prices remain low, which should help boost holiday sales.

Full report is here:

Conference Board Consumer Confidence Index Declines

US consumer confidence unexpectedly fell back in November, according to the conference board.

The index has come in at 88.7 compared to a concensus of 96 and last month’s figure of 94.1 (itself revised down from 94.5).

Over to Greece and the 48 hour talks taking place in Paris between the country’s government and the troika of lenders about exiting the bailout programme. Ahead of the meeting, one top official has described the talks as “make or break.” Helena Smith writes:

“We are playing with fire and the troika have never played harder. We’re at risk of losing everything - all the things we have achieved so far - if these [talks] aren’t positive and people feel, once again, they are about to lose even more,” a senior goverment official told me.

“If we don’t act on our promise to exit the bailout [programme], the risk of [main opposition] Syriza coming to power is very real and it won’t just be Greece, Europe will be thrown into turmoil. There is more uncertainty than many think, right now. You could say this meeting is make or break.”

Aid disbursements from the EU are due to expire on 31 December with Greece being wholly dependent on funds from the IMF after that although Athens’ fragile two-party coalition has said it would like to break free of the programme altogether as of 2015.

The government has dispatched three ministers, two of Samaras’ senior aides and a leading member of Pasok, the junior party in the coalition to Paris.

The US housing market remains buoyant, with the price of single family homes increasing by more than expected in September on a year by year basis, albeit by less than the previous month.

The S&P/Case Shiller index showed a 4.9% year on year rise in September, compared to forecasts of a 4.6% gain.

But this was lower than the 5.6% growth seen in August.

And on a seasonally adjusted monthly basis, prices were unchanged in the 20 metropolitan areas covered by the survey, compared to expectations of a 0.2% increase.

David Blitzer, chairman of the index committee, said:

The overall trend in home price increases continues to slow down.

With the economy looking better than a year ago, the housing outlook for 2015 is stable to slightly better.

Capital Economics reckons today’s growth report means the Federal Reserve is likely to raise US interest rates in March 2015.

They also flag up one disappointing change – “employee compensation” (pay, basically) were revised down for the second and third quarters.

In particular, the second quarter growth rate was slashed from 5.3% to 2.8%, resulting in a downward revision to the savings rate. The latter is now estimated to have been 5.0% in the third quarter, down from the initial 5.5% figures. Nevertheless, strong employment gains and increasing hours worked will generate solid gains in labour income over the next few quarters.

Rob Carnell of ING agrees that the US GDP report is broadly encouraging:

For instance, the upwards revision to equipment and software spending (business investment, now 10.7% from 7.2% initially), and personal consumption (consumer spending now 2.2% from 1.8%), and residential investment (homebuilding - now 2.7% from 1.8%).

However, this strong growth will dip in the current quarter, he adds:

Whilst some parts of this release do suggest that the US economy has more momentum than initially indicated, both inventories and the defence component of government spending are likely to revert to being considerable drags in the fourth quarter, taking GDP growth closer to 2.0% than 3.0%, and the profile for GDP will remain very choppy, masking an underlying growth rate of between 2.5% and 3.0%.

Another encouraging sign, US firms did not run down their inventories as much as first estimated.

The US GDP report also shows that US consumers spent more on ‘big ticket’ items in the last quarter; durable goods sales to consumers were up 8.7%.

And investment in new equipment rose by 10.7%, as this chart explains:

America grew rather faster than the UK over the summer.

Britain’s GDP rose by 0.7% in the third quarter of the year, which is an annualised rate of just over 2.8%.

Economists had expected US GDP to be revised down slightly, to an annual rate of 3.3%, so this is a ‘good number’...

The US growth rate has been revised up because consumer spending was stronger than first thought, at +2.2% (up from +1.8%).

Business investment was also higher than initially estimated, at +7.1% (up from +5.5%).

Nearly time for the next event of the day, the second estimate of US GDP for the third quarter of 2014.

The first estimate showed America’s economy grew at an annualised rate of 3.5% in July-September; economists expect a slight downgrade.....

The pound dipped during the Treasury hearing, down about 0.4 of a cent against the US dollar at $1.5667.

Edward Knox, currency analyst for Caxton FX,explains that the markets took “a fairly dim view” of the Bank of England’s testimony.

Carney, along with three of his colleagues from the Monetary Policy Committee, referred to the external factors such as the continued stagnation in the euro zone which pose a very real threat to UK growth.

They have continued the dovish theme from the Inflation report which was released on November 12th, and warned that downside inflation risks remain whilst growth in the UK for 2015 is likely to be slower than this year.

Carney and his colleagues have provided no serious surprises here, but the pound is unlikely to see much support today as traders continue to scale back bets of an interest rate hike.

The session ends with Andrew Tyrie, committee chairman, homing in on the issue of migration again (see earlier posts).

Does Mark Carney think there has been a change in UK policy on migration?

The governor doesn’t look happy discussing this issue.

But, after a pause, Carney says there has not been any change that would make the Bank change its forecasting models.

And the former Bank of Canada governor concludes by telling the committee that “as an immigrant to the UK” himself, he welcomes the current open borders policy.

That’s the end of the hearing.

Is the US exporting disinflation, or even deflation, through the commodities market now that its quantitative easing programme has ended?

It is hard to say that, Kristin Forbes replies. She points out that the US inflation rate is higher than the UK, and the higher dollar should push up the cost of imports from America (which should raise inflation)

Ouch. Carney takes issue with a recent Financial Times article that claimed the Bank’s forecasts were “nonsense” because they suggested the surge in labour market slack in the crisis would only occur once every 254 million years.

This is an erroneous and ‘misleading’ conclusion, the governor says; apparently the FT’s interpretation of standard deviations wasn’t right.

Here’s the original piece:

MoneySupply: Why the BoE is talking nonsense

Is the internationalisation of the UK economy helping to keep wages low?

We have seen net migration into the UK, Mark Carney says.

That has had two effects:

These people have expanded the total labour force. And they are filling important skills gaps, such as in IT.

That is allowing firms to hire more people and expand the economy, helping to drive productivity up.

So it is a positive factor, he suggests.

But the governor also warns that increased automation has serious implications for white-collar workers. This is driving the shift of jobs, and the kind of jobs that people with particular qualifications can do.

If we’re not careful, more people will be competing for lower paid jobs rather than moving up the pay scales, Carney concludes.

[this is a major issue in economics -- the theory that the rise of robots will have massive impact on the jobs market in the decades ahead, taking professional positions as well as manual labour].

Mark Garnier MP asks if Mark Carney has become softer and more compassionate about those households who would struggle to cope with a rise in borrowing costs.

Carney says he realises there is ‘sensitivity’ over the impact of interest rate hikes, and that is an important factor.

There may be a greater reaction to rate moves, when they come, because there are households that are heavily indebted, with floating credit where the cost of repayment will go up, Carney says.

And those people may be concentrated in parts of the economy which do not benefit from higher wage growth, when it picks up.

Garnier suggests that the poorest paid people are in the biggest danger.

Carney agrees that lower-paid workers have not, generally, seen a pick-up in wages to match the average. But that may be because pay is not rising at a flat rate across the economy -- it’s picking up pace faster in construction, and finance, for example.

Is that because the bankers bonus pay cap is pushing up fixed pay?

That’s the logical conclusion, Carney says. We do see a bigger move in measured, fixed, financial sector pay than we see in profits....

A reminder that the Treasury committee hearing is being streamed live, here (after that early technical hiccup)

The committee are trying, and largely failing, to pin the Bank down for an estimate on the UK economy’s trend growth rate.

It all depends how much of a recovery we see in productivity, they say. But Carney suggest a figure of, perhaps, something like, 2% to 2.25%. Probably.

The FT have the key quote from Kristin Forbes, in which she explained how there are upside, as well as downside, risks to the UK:

Where my view is slightly different than probably the median view of the nine of us on the Committee, is that I put slightly more probability on the risk that the global economy could be somewhat stronger than in our baseline forecast, especially the US economy, recently some of the data has been stronger, so there could be less of a drag on our forecast from the external economy.

John Thurso MP takes up the questioning: The Wall Street Journal reports that you have solved the puzzle of weak productivity, governor. Care to share the secret?

Did I? Carney replies, looking a little baffled.

I’ll have to dig out my old copies of the Journal and remind myself how I did it.

The governor then explains that the impact of the financial crisis on the City, and changes in North Sea oil, help explain why productivity hasn’t recovered since the crash.

Is is also true that workers have responded to the increase in the total workforce by accepting lower wages rather than losing their jobs?

Yes, on the margin, labour has been relatively cheap compared to capital (partly because the cost of capital soared after the crisis struck).

More people have stayed, or entered, the labour market than we expected a few years ago, Carney says, and that has had an impact on earnings growth.

Are UK consumers and businesses ready for interest rates to rise?

Ian McCafferty reckons consumers are not more sensitive to higher borrowing costs than in previous cycles.

(let’s hope so -- but the fact remains that rates haven’t risen since 2007).

Mark Carney says the impact on consumers is a “key focus” for the Bank.

But are the people who would be most impacted by a rate rise hearing your messages?

That’s an incredibly important point, the governor concludes. That’s why we speak to local news outlets, not just the financial press and the wires.

And we’re being deliberately ‘boring’ by repeating our message on the likely path of policy.

And that message, he says, is that interest rates are likely to go up, in a gradual and limited way.

Forbes says her personal assessment of the economy is ‘less gloomy’ than some headlines.

And the fact that UK consumers have been drawing down on their savings to fund spending is a sign of confidence, she suggests.

Kristin Forbes points out that the policymakers have repeatedly started a year with optimistic forecasts, but ended up downgrading them before the 12 months were out.

Carney reiterates that the stagnating eurozone economy is a serious threat to the UK economy.

There is a danger that the downside risks we see could transpire, the governor says, especially as our forecast is predicated on unconventional monetary policy from the European Central Bank.

[In other words, if the ECB doesn’t succeed in warding off deflation and stimulating growth, the consequences could be dire].

Is there any good news in the global economy, MPs ask.

Ian McCafferty (a hawkish member of the MPC), claims there are. He suggests the fall in the oil price could stimulate the global economy more than expected (lets hope so).

McCafferty adds that the chances of a precipitate collapse in the eurozone are small.

John Mann suggests that the Bank’s regional agents are failing to measure the UK labour market properly, because the spike in self-employment and migration has caught them out.

Isn’t there a danger that some of your data models are outmoded?

Jon Cunliffe agrees that there’s “always a danger” that structural changes in the economy are only picked up later. But the Bank has scrutinised its models to see if they are keeping up with the situation.

“Do we have as good data on this [self-employment] as everything else? No”, Cunliffe concludes. But we have to do the best job with what we’ve got.

We don’t have a clue, in other words, Mann replies.

Not true, says governor Mark Carney. We have done a lot of work trying to ensure we reflect the broader change in the labour market, matching structural changes with cyclical ones.

Mann invites professor Kristin Forbes, who joined the MPC this summer, to comment on the competence of her colleagues.

I’ve been very impressed by the knowledge and expertise of the Bank, says Forbes, padding the question back carefully.

John Mann MP chides Ian McCafferty for warning about wage growth, saying the MPC should have been encouraging it not flapping about the impact on inflation.

Kristin Forbes, MPC member, agrees that wage growth has been too low -- we need to see incomes rising so that household consumption doesn’t slow.

Why did the MPC get its inflation forecasts so wrong?

Ian McCafferty says the BoE didn’t get it wrong -- we expected inflation to fall, and it has. The oil price has fallen faster than we expected, though.

Has the Bank done any work on further easing measures to fight off deflation?

Mark Carney says it is “more likely than not” than inflation will fall below 1% un the next few months, leading him to write to the chancellor explaining why the CPI has not been kept within one percentage point of the 2% target.

But as the minutes of the last meeting showed, we did not consider any specific steps to ease monetary policy..

I’ll state the obvious...the MPC has considerable flexibility to provide additional stimulus if needed, Carney adds.

But with rates at the “zero lower bound” (ie, they can’t be cut much further), the MPC is looking through the current weak inflation (it was 1.3% last month).

I still expect the next move to be a rise in interest rates, he says.

What are the chances of inflation being below the BoE’s target?

Deputy governor Sir Jon Cunliffe says there are risks to the upside, and downside.

You can see risks to the external environment that would push down inflation, and the risk that we don’t see the wage rises we expect

Could we see deflation?

We don’t have a deflationary risk in our forecast, Cunliffe replies.

Kristen Forbes agrees that “powerful” external factor, such as the falling oil price, are still feeding through the economy and will keep inflation low in the months ahead.

She expects that inflation will head back to the 2% target in the medium term, though, as wage increases pick up.

Tyrie then challenges governor Carney over his forward guidance policy (that interest rates would not rise until the data showed the economy was strong enough).

You claim it’s an idea whose time had come, but in reality it’s an idea whose time had gone, Tyrie jibes (because unemployment fell much faster than the BoE expected).

Carney denies it. Forward guidance has reassured consumers and businesses, and underpinned the recovery.

Businesses got the message, he insists.

Forward guidance helped, and is one of the factors that built security.

Carney also denies that he changed tack when he introduced the ‘second stage’ of forward guidance, once the jobless rate had hit the 7% target. We were quite right to broaden the data that we looked at, and we’ll keep doing it.

Hmmm, the web feed from parliament has crashed, but the session is being streamed on Bloomberg TV (and probably on the website too)

Andrew Tyrie MP begins the session by asking why the minutes of the last MPC meeting showed a wide range of views between members.

Ian McCafferty (one of two hawks who voted to raise rates), says there is now “a balance of views” between the seven dovish MPC members over how much spare capacity remains in the UK economy, and the risks of inflation overshooting/undershooting predictions.

Mortgage approvals in the UK fell by 16%, year on year, in October, in the latest sign that the housing market is slowing.

British banks approved 37,076 mortgages last month, down from 43,918 a year ago and 39,127 in September.

BBA chief economist Richard Woodhouse says:

“Today’s figures suggest that the cooling of the property market has continued in recent weeks”

Over in the Netherlands, banking unions say they’re shocked by the news that ING is cutting around 2,700 positions.

ING announced this morning that 1,700 staff will be laid off over the next three years, as it integrates its IT systems. A further 1,075 contractors will also be cut.

The axe is mainly falling at ING’s Amsterdam-based headquarters.

Here’s a nice chart, from Nordea Markets’ European economist Holger Sandte, showing how parts of Germany’s service sector have been lacklustre since the collapse of Lehman Brothers in 2008:

Stat of the day?

Are credit card companies letting consumers down? The City regulator is preparing to find out....

The Financial Conduct Authority said today it will probe whether cards are being marketed too aggressively, encouraging consumers to run up debts they cannot pay off.

My colleague Jennifer Rankin explains:

At £150bn a year, the UK credit card market is the largest in Europe, with 30 million people holding cards with total debts of £60bn. The Financial Conduct Authority said it would launch an investigation into the market when it took over regulation of the sector in April.

On Tuesday it revealed the full scope of its inquiry. It will look at the complexity of credit cards, the fairness and transparency of their terms and conditions, and whether consumers can easily switch between different credit card providers....

Full story: Credit card market to be investigated by City watchdog over ‘aggressive tactics’

Back in the UK, the Nationwide Building Society has predicted that interest rates will remain at their current record lows until at least next April.

In its interim results this morning, it said:

As we look ahead to the remainder of the year, we do so against a background which has seen unemployment falling sharply and the economy growing at an annual rate of around 3%.

However, with few signs that inflationary pressures are building, and renewed concerns about a slowdown in the Eurozone, we do not expect the Bank of England base rate to rise before the start of our next financial year, with future rises being gradual in nature and settling below pre-crisis levels.

Nationwide also reported that net lending fell by a billion pounds in the six months to 30 September, to to £13.1bn, from £14bn a year. That suggests the UK housing market is slowing, following rapid growth this year.

Germany’s stock market is outperforming the rest of Europe this morning.

The DAX has gained 20 points, or 0.2%, in early trading. The French CAC is up just 0.1%, while the FTSE 100 is flat.

The BBC’s Europe editor, Gavin Hewitt, agrees that this morning’s German GDP report is encouring, even though growth was so weak at just 0.1% quarter-on-quarter:

UK DIY Kingfisher is still finding France tough, though.

It has reported that profits at its French division fell by 14.3% in the last quarter, or 8.4% if you adjust for the weaker euro.

Like-for-like sales fell 4.0% on a constant currency basis.

That wiped out an 11% rise in profits at its UK and Ireland operations, namely B&Q and Screwfix.

Sir Ian Cheshire, who steps down as CEO next month, was blunt about the French economy, saying:

Trading conditions in our largest and most significant market, France, were particularly difficult and deteriorated across the quarter, impacted by the weak economic backdrop.

In the UK however, where conditions have been more favourable, we have delivered LFL growth with Screwfix performing particularly well, delivering a 25% increase in sales on top of very strong growth last year. Overall, we remain cautious on the outlook, especially in France, and continue to focus on margin and cost initiatives to support our performance.

Cheshire’s success, Véronique Laury, knows all about the situation in France. She’s the head of Kingfisher’s French business, Castorama.

Shares in Kingfisher are down 2.7% in early trading.