The document is available here Economic Weekly-NatixisAM-02-09-2015

Key element of the week starting February 2
US employment has increased a lot during the last three months. The number of jobs creation was strong in January (+257 000) and the upward revisions in November and December were significant. This can be seen on the graph below.

The report was full of details that show a real improvement in the labor market.
The first is the change in regime since last April. It continues in January 2015 and reflects stronger numbers since April. The second point is the strong inflow on the labor market from people who were out of the market. This means that the labor market attractiveness has dramatically changed. This is a positive signal.
On another point of view the employment rate for people between 25 and 55 years of age is improving rapidly. These people have had a succession of negative shocks. Employment has dropped rapidly in this tranche of age. Step by step they are coming back on the market. The “25-55” employment rate is now at 77.2%. It is still 2.8% below the business cycle peak in January 2008.
That’s a situation I was expecting in order to have a real perception that the situation is converging to a more normal trajectory. The fact that people are back to the labor market is the main reason to explain the marginal increase of the unemployment rate. With this in mind, this is a good signal.
But the trajectory is still far from its long-term equilibrium and that’s why there are no pressures on wages yet. The average wage rate grows at the reduced pace of 2.2%.
Other Important Issues

• The situation in Greece is still fragile. Last week trips to visit European governments have not been a real success. They still have to convince that a switch between the current situation which expired on February the 28^th and a new contract will be profitable for everyone. Alexis Tsipras speech late on Sunday the 8^th is still close to Syriza program. On Wednesday the 11^th for the Eurogroup and the 12^th with the heads of government, Varoufakis then Tsipras will have to find support. A failure would drive to increasing the probability of a Euro Area collapse. (more in the document)
  The ECB has changed the refinancing conditions for Greek banks. Government bonds and bonds with the government guarantee will not be eligible anymore. The ELA instrument will be available but be more expensive than the usual procedure.
• PMI indices were almost stable in January for the manufacturing sector in developed countries. Nevertheless, the US ISM dropped for the manufacturing sector; probably the impact of a low oil price.
• Composite indices in the USA and the Euro Area were stable for the first and improving for the second.
• In these surveys, emerging countries are still weak. China is below 50 and Russia in recession
• Strong improvement in retail sales for the Euro Area in the fourth quarter (strongest since Q4 2006).
• For the whole year the US inflation rate was just 1.3% for the headline and 1.4% for the core measure. Far from the 2% target for the preferred Fed’s target.
• Due to poor growth prospects and to low expectations on commodity prices, the Reserve Bank of Australia has reduced its interest rate by 25 bp to 2.25%
• Industrial production was up in Germany for the 4^th quarter (2.5% after -1% in Q3) – + 1.3% in 2014
• Very large surplus for the Chinese external trade: USD 60bn – Drop in imports (commodities) is the main explanation. But exports dynamics was poor also (-3.3% on a year)

What will happen this coming week?

• The main issue will be the two meetings on Greece (11 and 12)
• GDP growth number for the Euro Area in the 4th quarter will be available on Friday
• Retail sales in the USA (Thursday) and the inflation report in UK (Thursday)
• Industrial production indices in Europe (France, UK, Italy, Euro Area)
• Employment numbers for the 4th quarter on France (Friday)