Inflation, unemployment and deficits.

This week, we’ll have unemployment and inflation data for September in the U.S. and in Europe. In Europe, inflation is expected to grow at 1.9% YoY and consensus estimates for unemployment is 6.4%. In the U.S., the PCE index is expected to grow at 2.2%, while unemployment is expected to be at 4.1%. For the U.S., these numbers are key since they are the last relevant economic numbers before the election next Tuesday, and they’re also the two most important data points for the Fed, that will meet Nov 6-7. But it’s also important for whoever wins the election: as you can see below, unemployment and the primary budget deficit (not taking into account debt interest payments) have been closely correlated until 2016. For the expected level of unemployment in the US, the deficit should be much lower, in the understanding that tax receipts should be enough to offset normal spending. But there hasn’t been a normal level of spending and the next president will need to address that, before we get into a point of no return.

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