The Federal Reserve launched a third round of quantitative easing, committing to purchase $40 billion per month of mortgage-backed securities until the housing market recovers. This is intended to put downward pressure on interest rates and support the broader economy. Stock markets reacted positively to the news, with the S&P rising 2% and Dow closing 300 points higher. Meanwhile, the German constitutional court approved the European Central Bank's bond-buying program, aiding Eurozone stability.

1. The Saturday Economist johnashcroft.co.uk
Bernanke offers more QE Saturday, 15 September 2012
Economic news this week, OTHER NEWS
Is Bernanke trying to get Employment
Obama re-elected? The Fed Claimany count fell in August
launched a third round of by 15,000.
quantitative easing in the US. --------------------------------
Trade in goods
The plan - to inject $40 billion Deficit fell to £7.1 billion in
into the US economy each July down from £10.1 billion.
month until the housing market ------------------------------
recovers. Construction Output
Construction output fell by
The actions, should put 10% in July
downward pressure on ---------------------------------
longer-term interest rates, Fed makes a move
support mortgage markets, Markets rallied as the Fed moved to boost output. The The Federal reserve embarked
and help to make broader FTSE closed up over 100 points on the week at 5,915, the on a fresh round of QE.
financial conditions more Dow moved to 13,593 up almost 300 points. In Europe the -----------------------------
accommodative. The Fed German DAX index closed up 200 points at 7,412. Gilt Base Rates
said in a policy statement this yields moved 20 basis points higher in Europe, The US and Ten year gilts yields move up
week. the UK. 20 basis points to 1.87
Closing : FTSE : 5,915; 10 Year Gilts 1.87%, Oil Brent Crude $116.66; Gold $1,771; $ 1.512; € 1.235

2. The Saturday Economist johnashcroft.co.uk
Fed makes the move with QE3 Saturday, 15 September 2012
Has Bernanke joined the holdings of longer-
Obama election camp? In term securities by
a strange move, ten weeks about $85 billion
ahead of the election, the Fed each month should
chied launched a third round put downward
of US quantitative easing. pressure on longer-
term interest
The Fed’s plan - to inject $40 rates, support
billion into the US economy mortgage markets,
each month until the housing and help to make
market recovers. broader financial
conditions more
The Committee agreed to accommodative.
increase accommodation by The Fed said.
purchasing mortgage-backed In Europe the German courts did not block the Draghi
securities at a pace of $40 Markets reacted with bond buying programme clearing the way for the
billion per month. a jump in prices the salvation of the Euro at least in the medium term.
S & P popped up 2%
These actions, which together and the Dow closed The world is looking a better place as we move into the
will increase the Committee’s 300 points higher. late Autumn period.

3. The Saturday Economist johnashcroft.co.uk
Employment suggests growth Saturday, 15 September 2012
Wednesday the ONS official underlying GDP
released the latest labour output data.
market statistics.
Employment in the three
The claimant count fell by months to July was 29.6
15,000 to 1,570k in August million up from 29.1
from a revised fall of 14,000 million a year ago. The
in July. economy has created half
a million new roles despite
The rate was relatively the loss of 400,000 jobs in
unchanged at 4.8% the public sector.
but indications are the
fall in claimant count 250,000 are self employed
unemployment in the third and 320,000 are in part According to the wider LFS based data, the
quarter could be almost time work, this may have unemployment rate was 8.1 per cent down 0.1% on the
50,000. some impact on labour quarter to July.
productivity and output per
This would be consistent worker but the pattern of There were 2.59 million unemployed people, down
with an economy growing employment is much better 7,000 in the three months.
by over 1% and at odds with than GDP data suggests.

4. The Saturday Economist johnashcroft.co.uk
Trade data in July .. Saturday, 15 September 2012
Trade in goods and Nothing particularly
services in July. Seasonally remarkable in the month’s
adjusted, the UK’s deficit on data other than an
trade in goods and services adjustment to the June loss
was £1.5 billion in July, of output performance, itself
compared with a deficit of a result of the bank holiday
£4.3 billion in June. and jubilee party.
There was a surplus of £5.6 The impact of depreciation
billion on services offset by has had little impact on
a deficit of £7.1 billion on trade peformance.
trade in goods.
Import volumes react to
This compares to a deficit domestic demand rather
(trade in goods) of £10.1 than price changes.
billion in June and an
average of £8.8 billion over Changes in relative export
the prior seven months of prices inhibited by a narrow
the year. manufacturing base and
international syndication.

5. The Saturday Economist johnashcroft.co.uk
Construction output falls 10% in July Saturday, 15 September 2012
On Friday, the ONS The dismal performance
released the latest figures for July was heralded in the
for construction output in recent CIPS Markit survey
July. data.
Output in the month was For the rest of the year in
down 10% year on year but Q3 and Q4 construction
the volume of new work, output may be down by
(accounting for almost 10% then 5% respectively
two thirds of activity) was before a strong recovery is
down almost 15%. manifest in Q1 2013.
Maintenance and repairs This is a function of the the
output was down by just work out of the fall evident
over 1%. from the start of the year
rather than a vigorous
The march of the makers response to government
has ground to a halt and the policy. By the end of
call to get Britain Building the year construction
is yet to gather momentum. sentiment will be much
more positive.
Page 5

6. The Saturday Economist johnashcroft.co.uk
What happened in the world this week Saturday, 15 September 2012
Bernanke is accused Oil prices closed at $116
of joining the Obama per barrel Brent Crude
campaign trail with the basis.
announcement of a further
round of asset purchases. Despite the slow down in
world trade, the basics of
The Fed has committed supply and demand will
to buy $40 billion of The headline rate of push prices higher as geo
Draghi deal gets the mortgage backed securities inflation in India pushed political risks surge.
nod September 12th the until market stability higher with the wholesale
German constitutional returns and Obama is re prices index rising by 7.6% The implications for
court, gave its qualified elected presumably. in August compared to UK domestic prices are
yes to a big rescue fund 6.9% in July. significant.
for troubled members of
the euro zone. “It is a good India now has a higher
day for Germany, and it is inflation rate than China,
a good day for Europe,” Brazil or Russia. The rise
said Angela Merkel, in fuel duties did little to
the chancellor, after the help sentiment as food
verdict. So let’s get on with price inflation hit 9%.
it.
Page 6

7. The Saturday Economist johnashcroft.co.uk
Professor Milton Keynes column Saturday, 15 September 2012
GDP and Claimant Count Comparisons
I am still puzzled by the In this chart the blue line GDP ONS PMK
strength of the employment represents the change in Q4 0.6 0.6
data and the apparent GDP year on year and the Q1 -0.2 1.2
weakness of the GDP red chart represents the Q2 -0.5 1.7
figures as published by quarter on quarter change Q3 na 1.8
the Office for National in the claimant count.
Statistics writes our resident
head of research Professor It is inverted so that as the
Milton Keynes this week. claimaint count increases,
the inverted chart falls in
Most people still think of line with the GDP change.
employment as a lagging
indicator of economic The most recent two
growth but as my chart quarters suggest the
explains, the claimaint estimates for GDP decline
count provides an extremely are at odds with the
reliable coincident indicator employment data. Far from
of trends in the economy. falling, the economy may
well be growing.
Page 7

8. The Saturday Economist johnashcroft.co.uk
Markets : FTSE 5,915 : DOW 13,593 : Nasdaq 3,183 : DAX 7,412 Saturday, 15 September 2012
FTSE 5,915 + 121 £:$ 1.512 - .090
DJIA 13,593 + 287 £:€ 1.234 - .015
NASDAQ 3,183 + 47 $:€ 1.313 + .035
DAX 7,412 + 198
$:¥ 78.12 + 10 bp
CAC 3,581 + 62
Base Rate 0.50%
Nikkei 9,159 + 288
10 yr UK 1.97% + 26bp
Hang Seng 20,629 + 827
10 yr US 1.87% + 20bp
S & P 500 1,466
10 yr Euro 1.72% + 19bp
Brent Crude $ 116.66 - 2.41
Copper 383.20 +18.95
WTI Crude $ 99.06 - 2.77
Corn 798.20 + 05.0
Gold $ 1,771 + 34
Wheat 925.00 + 38.0
Silver 5000 $ 3,438 + 67
Cotton 74.80 - 0.65
Platinum $ 1,709 + 10
Page 8

9. The Saturday Economist johnashcroft.co.uk
Growth Inflation Unemployment Government Borrowing
GDP in the second quarter Inflation CPI basis was 2.6% Claimant count in August fell In the first three months to
fell by 0.5% year on year as in July. Inflation RPI and by 15,000 to a level of just June, Government was up
the recovery of 2010 petered RPIX increased to 3..2% from under 1.6 million and a rate by £4.5 billion. Borrowing
out in 2011. 2.8%. of 4.8%. is likely to exceed the levels
achieved in 2011/12.
Growth in Q1 fell by 02%. In Manufacturing price inflation The LFS count fell slightly
2011 UK growth was up by up by 2.2% in August, latest (three months to July) to a
0.8% and 1.8% in 2010 . earnings up by 1.9% in July. level of 2.59 million. 8.1%

10. The Saturday Economist johnashcroft.co.uk
Latest Economic Indicators Saturday, 15 September 2012
Indicator Period Latest Source Notes
Inflation CPI July 2.6% ONS
Inflation RPI July 3.2% ONS
Inflation RPIX July 3.2% ONS
Earnings July 1.9% ONS Whole economy
Retail Sales Volume July 2.8% ONS year on year comparison
Retail Sales Value July 3.1% ONS year on year comparison
Unemployment m July 2.57m ONS LFS millions trailing three months
Unemployment % June 8.1% ONS LFS per cent trailing three months
Claimant Count m August 1.570 ONS Million
Claimant Count % August 4.8% ONS per centage
PPIs output August 2.2% ONS Manufacturing prices output
PPIs input August 1.4% ONS Manufacturing prices input
GDP change Q2 -0.5% ONS year on year comparison
Manufacturing August -0.5% ONS year on year comparison

11. The Saturday Economist johnashcroft.co.uk
The Saturday Economist is a round up of the The publication of this document should not be
week’s economics news for the UK published construed as the giving of investment advice.
on the web site johnashcroft.co.uk.
Forecasting is subject to frequent revision
The information is also available as a PDF Please remember we are forecasting the output
download. of the Office for National Statistics which may,
of itself, be subject to revision.
The information was originally published in
short form in the Sunday Times and Croissants All views expressed in the Saturday Economist
weekly blog post and has been expanded are my own. Information is intended to provide
following requests for more information. a general outline of the subjects covered. It
should neither be regarded as comprehensive
The material in the Saturday Economist is nor sufficient for making decisions, nor should
based upon information which we consider to it be used in place of professional advice.
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In particular, no reliance should be placed on Data adapted from the Office for
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