8 See Anderton, R., Aranki, T., Bonthuis, B. and Jarvis, V. (2014), “Disaggregating Okun’s law − Decomposing the  impact of the expenditure components of GDP on euro area unemployment”, Working Paper Series, No 1747, ECB, December. 9 5/6  BIS central bankers' speeches  9 The fiscal stance is measured as the change in the cyclically adjusted primary balance net of government  assistance to the financial sector. 10 See Knotek, E. S. and Zaman, S. (2014), “On the Relationships between Wages, Prices, and Economic Activity”,  Economic Commentary, August; Bidder, R. (2015), “Are Wages Useful in Forecasting Price Inflation?”, FRBSF Economic Letter. 11 Bobeica, E., Ciccarelli, M. and Vansteenkiste, I. (2019), “The link between labor cost and price inflation in the  euro area”, Working Paper Series, No 2235, ECB, February. 12 Bobeica et al., op. cit. 13 See Head, A., Kumar, A., and Lapham, B. (2010), “Market Power, Price Adjustment, and Inflation”, International  Economic Review, 51(1):73–98; and Taylor, J. (2000), “Low Inflation, Pass-Through and the Pricing Power of Firms”, European Economic Review, 44:1389–1408. 14 Bobeica et al., op. cit. 15 See Hahn, E. and O’Brien, D. (2018), “Monitoring the exchange rate pass through to inflation”, Box 3 in Economic  Bulletin, Issue 4, ECB. 16 See Koester, G. and Guillochon, J. (2018), “Recent developments in the wage drift in the euro area”, Economic  Bulletin, Issue 8, ECB. 17 Andersson, M., Kok, C., Mirza, H., More, C. and Mosthaf, J.
While employment growth moderated in the second half of last year, in 2018 it was significantly higher than would be expected based on the static long-term relationship between employment and GDP growth.7 As a result, real disposable income has remained resilient and households’ assessment of their own financial situation, which is a good leading indicator of consumption, remains positive. The resilience of the employment-consumption relationship helps explain why, even as the manufacturing outlook has worsened, services have remained relatively robust. Services is the most labour-intensive sector and is associated closely with consumers’ expenditure.8 There are however lags between changes in GDP and in employment, and surveys on employment, while remaining in expansionary territory, have decelerated since the middle of last year. So should the growth slowdown turn into a more persistent phenomenon, employment and consumption are likely to be affected. All in all, the current data suggest that external demand has not yet spilled over significantly into domestic demand, but the risks have risen in the last months and uncertainty remains high. This is why our medium-term outlook remains that growth will gradually return to potential, but the risks remain tilted to the downside. That outlook is also being buttressed by the pre-emptive reaction of stabilisation policies.