US payroll data, later tonight, will swing markets
Apart from the huge $100 billion or so boost the US economy got in 2012 thanks to the change in accounting standards—“intellectual property products” such as the R&D on an iPhone were added to GDP, among others like “entertainment originals”—the good news is the continuing strengthening of economic growth. From a near-stagnant 0.1% in Q4 2012, growth in real GDP rose to 1.1% in Q1 2013 and to a further 1.7% in Q2 2013—the growth takes into account the new accounting standards. While there has been a bit of a slowdown in private consumption expenditure and its contribution to growth thanks to higher payroll taxes—from 2.3% in Q1, private consumption slowed to 1.8% in Q2. This got made up, and more, by the more than doubling of private investment—from a growth of 4.7% in Q1, this rose to 9% in Q2. Even exports contributed sharply to growth, an addition of 0.9 percentage points of the total GDP growth of 1.7 percentage points.
While a strengthening US GDP in itself suggests the Fed may begin its bond tapering a bit faster than expected, the real number to watch out for is the non-farm payrolls data out later tonight. While US unemployment rates have risen over the past couple of months as more people who were previously laid off are coming back to join the workforce, what’s critical is the number of new jobs created. Around 157,000 jobs got created in January and this rose dramatically to 236,000 in February before collapsing to a mere 88,000 in March. In April, this rose to 165,000, to 175,000 in May and to 195,000 in June. Though the Fed continues to be vague about what level of new jobs creation, or unemployment, it will start the taper, the fear is a July number somewhere near the June level could signal that moment is closer than previously thought. While Indian currency and equity markets will react with fright on Monday to a higher US employment number as this will signal lower global liquidity, the other problem is that a US recovery could lead to a higher price of commodities like crude oil.