This strength in consumption was accompanied by solid income growth, as real disposable income increased at a 3.6 percent annual rate in the fourth quarter, reflecting the stronger labor market. The pace of improvement in the labor market has slowed in recent months from the strong pace at the end of last year. Nonfarm payroll employment increased in the first quarter by about 200,000 per month, well below the pace of the fourth quarter. This slowdown was broad-based, with job growth slowing in both the goods-producing and the service-providing sectors. The unemployment rate was 5.5 percent in March: analysis by my staff suggests that the unemployment rate is nearing the point where we may begin to see a pickup in the pace of real wage gains. If this proves correct and unemployment continues to decline as I expect, then these stronger wage gains could help support solid income growth even if the pace of employment growth slows. However, it will be important to monitor developments to determine whether the softness in the March labor market report evident on Friday foreshadows a more substantial slowing in the labor market than I currently anticipate. The March labor market report is another indicator that the first quarter is likely to be quite weak. Our current projection is that the economy will grow at about a 1 percent annual rate in the first quarter of 2015. This softer performance is suggested by a wide range of recent indicators that have surprised to the downside over the past couple of months.
We have to demonstrate the same spirit with which the European Union was progressively developed over the past half-century: setting objectives, agreeing deadlines and mobilising the necessary political will within Parliaments. Europe’s governments are committed to pursue fiscal consolidation. Those within the euro area have formally declared that they will take “all measures needed to meet fiscal targets this year and the years ahead in line with excessive deficit procedures” (Euro area heads of state or government declaration of 7 May 2010). Some of them have made precise additional commitments to accelerate fiscal consolidation and ensure the sustainability of their public finances. Fiscal consolidation is being put in place at the same time as we strengthen the resilience of the European banking sector. Publication of the detailed results of a harmonised panEuropean stress test is an important step in the right direction. These tests will increase transparency and enhance investors’ confidence in Europe’s banking sector. They will also contribute to restoring the important intermediation role of the interbank market in channelling funds within Europe. 3. Where next? So where do we go from here? As I have indicated, collectively as European and global policy-makers, we need to ensure economic recovery and renewed confidence, while reducing fiscal deficits and remaking the financial system into one that supports the real economy. This needs to be our clear sense of direction. 1  Keynes (1937), “How to avoid a slump”, Article in The Times, 12 January 1937.