Following last week,’s announcement that the United States economy was bouncing back, with employment rising by 165,000 and unemployment dropping to 7.5, our Head Economist Richard Nicholls ponders the resilience of the US consumer and the potential impact this will have on the global economy…

Last week’s good employment statistics were the latest sign of resilience from the US economy and the American consumer.  Employment rose by 165,000 in April, well ahead of population growth; and while the number of government jobs fell by 11,000, the private sector created some 176,000 jobs. 73,000 of these were in professional and business services.

This follows good data on consumer spending in 2013. Despite the increase in payroll taxes as part of the fiscal cliff deal, and now the government cuts mandated by the Sequester, consumer spending has kept rising in real terms month-on-month (0.2% in January, 0.3% in February and 0.3% in March). This is despite aggregate real disposable income falling by 3% since the end of 2013, largely a result of tax increases.

What has happened? A fall in the saving ratio – this now stands at 2.7% as of March, down from an average of 3.9% in 2012. The American consumer so far has absorbed the payroll tax increase. (In contrast, the saving ratio in the UK is around 7%.)

The continued resilience of the American consumer will be crucial to global economic prospects – while more work is needed, there is growing evidence that the US economy is slowly recovering.  Only time will tell what impact this has on the global stage – but this could well be a time for cautious optimism.

For more US, UK or global economic data or predictions, including country-specific economic snapshots please contact the Future Foundation on 0203 008 4889.

The Budget – no change in direction but a change in emphasis

While the more obvious headlines from today’s Budget are likely to focus on the cut in beer duty (and scrapping of the beer duty escalator) and the leaking of Budget details to the Evening Standard, the overall tone was a defiant resolution by the Government to stick with their austerity policies despite not meeting their fiscal or growth targets. Government spending and public sector pay will remain under severe pressure and the Chancellor refused to stimulate the economy through aggressive expansionary spending or tax cuts.

But there have been some changes or accelerations in emphasis. The planned increase in fuel duty has been cancelled, a measure that will help to ease inflationary pressures. The government has announced a substantial new shared equity scheme, Help to Buy. There will be £3billion per year in new infrastructure spending (such as transport) from 2015 – this kind of government spending can have a high multiplier effect, meaning that the ultimate benefit to the economy can be much larger than the initial investment.

Elsewhere, several measures spoke to some of the Government’s favourite themes of encouraging enterprise and work. National Insurance will be cut by £2,000 for every firm, making a substantial difference to very small firms. Corporation tax will be cut again, to 20%, in 2015. The income tax personal allowance will be raised to £10,000 in 2014, a year earlier than previously planned and fulfilling a key Liberal Democrat election pledge.

Implications for brands? Unless you work in an obviously affected sector (such petrol,  alcoholic beverages, shale gas extraction or construction), there’s not a lot of unexpected news here. It’s no surprise that growth forecasts have been downgraded; at least the OBR isn’t forecasting a triple dip (though Q1 growth will likely be so close to zero that we’ll be awaiting the figures nervously).

For more details, nVision UK subscribers will be able to access a special extended edition of Economic Snapshot on the nVision website from tomorrow.

A report released today has pointed to short-term thinking from businesses and unions as a major barrier to UK economic growth.

With disposable incomes under pressure due to austerity and inflation, investment from private sector businesses will be critical to driving growth in the medium term. However, the report has claimed that short termism and pressure to deliver instant results have become entrenched – to the detriment of long-term development.

The report was commissioned by the Labour Party though was an independent review by former head of the Institute of Directors Sir George Cox.

Of course, the critical importance of thinking about the long-term future is a theme that we at Future Foundation so often return to (even in the economics team!). Consumer confidence can jump up and down on a monthly basis but wavelengths of change, whether attitudinal, behavioural or structural, operate at very different tempi.

The full report is available here and as ever, we’d love to hear your thoughts:

http://www.yourbritain.org.uk/uploads/editor/files/Overcoming_Short-termism.pdf

The Chancellor’s (mis-named) Autumn Statement contained few great surprises. After a year when the economy deteriorated into a double dip before being fished out by the Olympics, underlying growth is low and the government’s deficit reduction plan has been pushed back. The government has admitted that austerity will now last until 2018. The UK government may lose its cherished AAA credit rating next year. However, some better-than-expected numbers on the UK’s fiscal position in recent days, coupled with the expected windfall from the 4G auction, gave George Osborne room for manoeuvre.

One theme of the statement was a helping hand for business. A cut in corporation tax, tax relief on investment and £1 billion for Vince Cable’s business bank are designed to stimulate a corporate recovery. Many British businesses are cash-rich but a lack of confidence in the consumer sector has held back investment. If the consumer outlook improves from its frosty position next year then the Chancellor will hope that the ‘corporate reawakening’ scenario, often predicted by economists but for so long just out of reach, can drive growth.

The cancellation of the planned rise in fuel duty was widely expected; a response to high oil prices which have a knock-on effect on inflation more broadly.

The government also has its eye on the income distribution and inequality debate. The income tax personal allowance will rise in April by even more than planned while the higher rate income tax threshold will rise by only 1% over the next few years, lower than inflation. Higher earners will face a smaller tax-free allowance on pension saving.

Many benefits have also been increased by only 1%, equating to a cut in real terms.

The Chancellor could not avoid addressing the issue of tax avoidance, so prominent in public debate this year. He announced a treaty with Switzerland to bring in money from bank accounts there, as well as more tax inspectors and a general anti-tax abuse rule.

See nVision trends: The Good Company; Income Polarisation; Pop Radical