Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

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Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Macroeconomics

<div>The weaker-than-expected <em>Employment Situation</em> report for non-farm payrolls in August has raised expectations that the Fed could delay tapering asset purchases, but investors need to discern whether the outcome was due to an underlying slowing in labour demand or merely statistical noise. Estimates for Q3 real GDP growth have been revised down in recent weeks, while labour market data in September will be impacted by people returning to the workforce, thereby providing more time for the Fed to deliberate over the timing of tapering asset purchases.</div>
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<div>The Great Lockdown has imparted scars on US labour supply by amplifying the declining working age population via a sharp fall in the participation rate. Elevated measures of job openings and underemployment paint a paradoxical overview of the US labour market, while elevated unemployment in certain demographic cohorts raises questions about the decision to taper asset purchases.</div>
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<div>The Fed will assess if slowing employment reflects softening aggregate demand or supply-side damage to the labour market, but elevated job openings suggest the latter, an outcome that implies limited efficacy for monetary policy in dealing with this issue. Labour supply has been impacted by enhanced unemployment insurance benefits, the rise in home schooling due to the pandemic, as well as the prevalence of so-called long COVID.</div>
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<div>Continued slowing growth of the workforce will lower potential GDP growth and the required neutral level for the federal funds rate, but the key issue for investors is whether slower growth produces higher inflation. The unwinding of supply chain dislocations is crucial behind the Fed's transient inflation thesis, but the prospective trend in productivity will be vital in determining whether there is a risk of slower growth being associated with higher inflation.</div>

The weaker-than-expected Employment Situation report for non-farm payrolls in August has raised expectations that the Fed could delay tapering asset purchases, but investors need to discern whether the outcome was due to an underlying slowing in labour demand or merely statistical noise. Estimates for Q3 real GDP growth have been revised down in recent weeks, while labour market data in September will be impacted by people returning to the workforce, thereby providing more time for the Fed to deliberate over the timing of tapering asset purchases.

The Great Lockdown has imparted scars on US labour supply by amplifying the declining working age population via a sharp fall in the participation rate. Elevated measures of job openings and underemployment paint a paradoxical overview of the US labour market, while elevated unemployment in certain demographic cohorts raises questions about the decision to taper asset purchases.

The Fed will assess if slowing employment reflects softening aggregate demand or supply-side damage to the labour market, but elevated job openings suggest the latter, an outcome that implies limited efficacy for monetary policy in dealing with this issue. Labour supply has been impacted by enhanced unemployment insurance benefits, the rise in home schooling due to the pandemic, as well as the prevalence of so-called long COVID.

Continued slowing growth of the workforce will lower potential GDP growth and the required neutral level for the federal funds rate, but the key issue for investors is whether slower growth produces higher inflation. The unwinding of supply chain dislocations is crucial behind the Fed's transient inflation thesis, but the prospective trend in productivity will be vital in determining whether there is a risk of slower growth being associated with higher inflation.

Has COVID-19 Damaged US Labour Supply and Potential GDP Growth? Big Implications for Fed Policy