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World Economy

OPEC Monthly Oil Market Report – October 2017


With regards to the

US monetary policy

, it seems the Fed may go ahead with its plans to gradually

normalise its monetary policy, given the ongoing momentum in the US economy. In a unanimous decision at

its September meeting, the Fed confirmed plans to reduce its balance sheet and, hence, monetary supply.

Additionally, the Fed left the target range for the federal funds rate unchanged at 1.0% to 1.25%, while

indicating that a hike in the key interest rate remains possible in December. The Fed highlighted that recently

inflation had dropped more than expected and consequently lowered its core inflation target from 1.7% to

1.5%. Despite this development, most board members expect to raise rates at the end of the year as the

decline in inflation was considered to be transitory. At the same time, the Fed will start the process of

unwinding its balance sheet by gradually decreasing the reinvestment of principal by $10 billion as outlined in

its June meeting. The decision was also a vote of confidence for the positive momentum in the US economy

as the Fed gave a broadly optimistic outlook on the current economic picture. At 2.4%, the estimate for

growth this year was somewhat stronger than June’s outlook of 2.2%, with negative impacts from the recent

hurricanes seen as temporary. While the Fed has highlighted that its future path is contingent on the

development in the domestic economy in general, the labour market inflation and potential spill-overs to the

global economy, the most recent comments seem to indicate that the Fed will pursue with its tightening cycle

as planned. Inflation stood at 1.9% y-o-y in August, again rising for a second consecutive month. Core

inflation, excluding volatile items as food and energy, remained at 1.7% y-o-y for the fourth consecutive

month, below the Fed’s inflation target of around 2%.


labour market’s

positive momentum continued but was clearly negatively impacted by the hurricane

season as non-farm payrolls fell by 33,000 in the latest August labour market report. It showed that jobs in

the leisure and hospitality industry fell last month, with employment falling by 111,000 as many workers were

off payrolls due to the hurricanes. Positively, the unemployment rate fell to 4.2% and average hourly

earnings growth for the private sector moved up to 2.9% y-o-y, the highest since the end of 2016. Long-term

unemployment numbers rose again to stand at 25.5% in September, after it had improved slightly to 24.7%

in August. Finally, the participation rate rose to 63.1%, comparing to 62.9% in August and in July.

Industrial production

also seems to have been impacted by the weather conditions in August as industrial

production decelerated to 1.5%, compared to a rise of 2.4% in July.

Domestic demand

held up well in

August and was supported by retail sales growth numbers, which stood at 3.2% y-o-y, albeit slightly below

the July level of 3.5% y-o-y. The generally positive trend in domestic consumption was also visible in the

Conference Board’s Consumer Confidence Index, which stood at 119.8 in September, only slightly below the

already considerable level of 120.4 in August.


Purchasing Managers’ Index

(PMI) for

the manufacturing sector, as provided by the

Institute of Supply Management (ISM), also

indicated ongoing support in the underlying

economy, with very strong numbers in both the

manufacturing and non-manufacturing sectors. The

manufacturing PMI increased to 60.8 in September,

compared to an already high level of 58.8 in August

and 56.3 in July. The important index for the

services sector, which constitutes more than 70%

of the US economy, rose to 59.8, after a level of

55.3 in August.


GDP growth forecast

for both 2017 remained

at 2.1%. While the 3Q17 growth may be negatively

impacted by the weather related effects, further

GDP growth may materialise via reconstruction

efforts after the hurricane season in the 4Q17. By

taking a slightly positive outcome of the US

Graph 3 - 2: Manufacturing and

non-manufacturing ISM indices

administration’s tax proposal into consideration, the 2018 GDP growth forecast was revised up to 2.3% from

2.2%. There is further room to the upside, depending on the outcome of the now ongoing budget and tax

related discussions in Congress.











Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

Jul 17

Aug 17

Sep 17


ISM manufacturing index

ISM non-manufacturing index

Sources: Institute for Supply Management and Haver Analytics.