Albert Edwards at Societ General with the note.
The back-to-back decline in US 1Q and 2Q GDP has provoked a robust discussion about whether this means the economy is in recession or not. Much of this debate is political and semantic. One of the key arguments to reject the recession call is that jobs growth is “incredibly strong”. Ahead of the key Employment Report for July, I seek to square this seemingly contradictory circle. The simple fact is that the jobs data are doing what they normally do in recession – they mislead.
Before I look at the US data, I just have to present my award for ‘dumb move of the week’. The Bank of England, in its infinite wisdom, hasdecided to scrap the mortgage affordability test. This ‘stress test’ forced lenders to calculate whether potential borrowers would be able to cope if interest rates climbed by up to 3% (link). This easing of lending standards comes at exactly the point in time when I would have thought a stress test would be most useful. Genius!
