European banks are in a similar position.
Most of the proceeds of the ECB’s bond buying
program remain on deposit with the ECB.
Across the eurozone, bank loan portfolios and deposits
have been little changed since the crisis. Since
the ECB is unlikely to start unwinding its bond
portfolio before 2019, this is a less pressing issue.
But the robust growth in Europe does raise the
question of whether European banks resume
lending in 2018, and if so, do they raise new
deposits or lend against excess reserves?
A final key indicator to watch in 2018 is the
US labour market. Over the past couple years, the
labour force has increased by about 1.2m
annually, as millennials entering the labour force
more than offset baby boomer retirements.
It is possible that labour force growth will fall below
1m in 2018 as retirements escalate. While the
baby boomers have been in retirement mode now
for nearly a decade, the later and largest cohorts
with 4m or more people (now aged 53 to 60) are
now entering the years when their participation
rate falls sharply.
The participation rate for 53-year-olds is 77 per cent;
that falls to 65 per cent for 61-year-olds and
40 per cent for people aged 66.