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497 matches for " wage growth":
Mark Carney emphasised in his Mansion House speech last month that he wants wage growth to "begin to firm" from recent "anaemic" rates before voting to raise interest rates.
In one line: Wage growth was slowing ahead of the Covid-19 shock; is the record m/m slide in ZEW a sign for the PMIs?
The case for continuing to increase Bank Rate gradually--recently reiterated by MPC members Andy Haldane and Michael Saunders-- strengthened yesterday with the release of April's labour market report, which revealed renewed momentum in wage growth.
Today's labour market figures likely will show that wage growth is bouncing back from a soft patch in late 2015. As a result, the MPC won't be able to sit on its hands much longer, especially in light of the continued dire news on productivity.
September's labour market report suggests that wage growth won't continue to rise for much longer.
Data on Friday showed that German wage growth is firming. Nominal labour costs rose 2.5% year-overyear in Q3, accelerating from a revised 1.9% increase in Q2. The main driver was a strong rebound in gross earnings growth, which rebounded to 2.4% year-over-year from an oddly weak 1.2% in Q2.
It's a myth that the 10-ye ar decline in the unemployment rate has not driven up the pace of wage growth.
Slack in the labour market no longer is being absorbed and wage growth still is struggling for momentum, placing little pressure on the MPC to rush the next rate rise.
One of the key characteristics of this euro area business cycle has been near-zero inflation due to structurally weak domestic demand and depressed prices for globally traded goods and commodities. This has supported real incomes, despite sluggish nominal wage growth.
Last week's evidence of still-strong wage growth in the EZ at the start of the year almost surely has gone unnoticed as markets focus on the prospect of rate cuts, not to mention more QE, by the ECB.
Today's labour market figures look set to show that wage growth has continued to slow, fuelling speculation that interest rates are going nowhere soon. But a close examination of why wage growth has weakened suggests investors will be surprised by a robust rebound later this year.
Wage growth will be crucial in determining how quickly the MPC raises interest rates this year. So far, it hasn't recovered meaningfully.
Amid the intensifying debate about the pros and cons of E.U. membership, higher immigration from the rest of Europe often is blamed for the disappointing weakness of wage growth over the last couple of years. But we see little evidence to support that hypothesis.
Yesterday's labour market data gave sterling a shot in the arm on t wo counts. First, the headline, three-month average, unemployment rate fell to just 4.5% in May, from 4.6% in April.
ebruary's labour market data failed to make a resounding case for the MPC to raise interest rates in May, prompting markets to reduce the probability attached to a hike next month to 85%, from nearly 90% before the data were released.
Leading indicators for consumers' spending in France are sending conflicting signals. Survey data suggest that households are in a spendthrift mood. Data yesterday showed that the headline consumer sentiment index was unchanged in March at 100, the cycle high.
Always expect the unexpected in a bonus month for Japanese wages.
We hadn't expected the scorching 3.6% year-over- year growth rate in Japan's June average wages
We want to revisit remarks from Fed Vice-Chair Clarida last week.
The Fed wants price stability--currently defined as 2% inflation--and maximum sustainable employment.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
The rate of growth of wages has been the single best guide to Fed policy for many years.
Yesterday's labour market data delivered a further blow to hopes that consumers' spending will retain enough momentum for the MPC to press ahead and raise interest rates this year. The most striking development is the decline in year-over-year growth in average weekly wages to just 1.9% in December, from 2.9% in November.
December's payroll numbers were unexciting, exactly matching the 175K consensus when the 19K upward revision to November is taken into account. Some of the details were a bit odd, though, notably the 63K jump in healthcare jobs, well above the 40K trend, and the 19K drop in temporary workers, compared to the typical 15K monthly gain.
If the Fed needed further encouragement to raise rates next month, it arrived Friday in the form of solid jobs numbers, a new cycle low for the broad unemployment rate, and a new cycle high for wage growth.
Japan's average year-over-year wage growth slowed sharply in May, but this mainly was a correction of the April spike.
Japan's regular wage growth continued to edge up in November, maintaining the rising trend. The headline is volatile, with growth in labour cash earnings rising to 0.9% year-over-year in November, up from a downwardly revised 0.2% in October.
The absence of hawkish undertones in the minutes of the MPC's meeting or in the Inflation Report forecasts took markets by surprise yesterday. The dominant view on the Committee remains that the economy will slow over the next couple of years, preventing wage growth from reaching a pace which would put inflation on trac k permanently to exceed the 2% target.
Japan's wage growth surprised us with a jump to 2.0% year-over-year in December, up from 1.5% in November.
The Monetary Policy Committee continues to assert that it can leave interest rates at rock-bottom levels, even though the unemployment rate has returned to its pre-recession level, because it understates the extent of slack in the labour market. If that hypothesis were correct, however, the relationship between the unemployment rate and wage growth would have weakened. But this clearly has not happened, as our first chart shows.
April's labour market data show that slack in the job market is no longer declining, while wage growth still isn't recovering. As a result, we no longer think that the MPC will raise Bank Rate in August and now expect the Committee to stand pat until the first half of 2019.
Jim Bullard, the St. Louis Fed president, said last week that Phillips Curve effects in the U.S. are "weak", and that nominal wage growth is not a good predictor of future inflation.
Wage growth in Japan accelerated to a six-month high in December, inching up to 1.8% year-over-year, from November's 1.7%.
Japan's wage growth bounces back on volatile bonuses; distortions still at play? Korea's current account surplus has bottomed out, but pressure on the won will continue to rise in the S/T.
Beyond the immediate wild swings in prices for food, clothing, hotel rooms and airline fares, the medium-term impact of the Covid outbreak on U.S. inflation will depend substantially on the impact on the pace of wage growth.
Markets over-reacted to the much smaller-than-expected 0.1% increase in January hourly earnings, in our view. We don't have a full explanation for the shortfall against our 0.5% forecast, but that doesn't make it wise to throw out the baby with the bathwater, making the de facto assumption that wage growth now won't accelerate in the future.
If the economy is to enter recession, falling business investment probably will have to be the main driver. Growth in consumer spending likely will slow sharply over the next year as firms become more cautious about hiring new workers and inflation begins to exceed wage growth again.
The shortfall in nominal wage growth, relative to measures of labor market tightness, remains the single biggest mystery of this business cycle.
The new fiscal projections in the Budget today likely will be based on implausible economic projections, which assume that wage growth will accelerate soon, lifting inflation, but that interest rates won't rise for three more years. You can coherently forecast one or the other, but not both.
Wage growth in the euro area slowed slightly last year, consistent with the rapid deceleration in economic growth since the end of 2017, though it remained robust overall.
Following our note yesterday about upside risks to wage growth and the question of how the Fed will respond, given their sensitivity to labor cost-push inflation risk in the past, we want to address a question raised by readers.
In the absence of any significant data releases today, we want to take a closer look at the outlook for wage growth, and the implications of an acceleration in hourly earnings for inflation.
Last week, the Atlanta Fed updated its median hourly earnings series with new October data, showing wage growth accelerating to an eight-year high of 3.9%. That's a full percentage point higher than the increase in this measure of wages in the year to October 2015, and it follows a spring and summer during which wage growth appeared to be topping-out at just under 3½%.
Yesterday's labour market data brought further signs that wage growth is recovering from its early 2017 dip.
The long-awaited decisive upturn in wage growth still hasn't emerged. Year-over-year growth in average weekly wages, excluding bonuses, held steady at 2.6% in May.
The most striking aspect of yesterday's labour market report was the pick-up in the headline three month average year-over-year growth rate of average weekly wages, to a 14-month high of 2.8% in November, from 2.6% in October. Although still low by pre-recession standards, wage growth now is close to the rate that might worry the MPC.
The strength of the economic recovery next year and the MPC's scope to leave interest rates at ultra-low levels will hinge on whether wage growth picks up in response to rising inflation.
Investors kicked expectations for the first rise in official interest rates even further into the future when last month's labour market data, revealing a sharp fall in wage growth, were released. But a closer look at the official figures reveals that labour cost pressures have remained robust, cautioning against making a snap reaction if even weaker wage data are released on Wednesday.
This was supposed to be the year that wage growth finally would pick up and signal clearly to the MPC that the economy needs higher interest rates.
Chief U.S. Economist Ian Shepherdson on August Employment data
All the evidence indicates that growth in Mexican consumers' spending is slowing, despite the better- than-expected November retail sales numbers, released yesterday.
Fed Chair Powell sounded a lot like Janet Yellen yesterday, at least in terms of substance.
Last week the Chinese authorities issued a series of new measures to help with bank recapitalisation, and, we think, to supplement interbank liquidity.
Gilt yields have tumbled, with the 10-year sliding to just 1.0%, from 1.2% a week ago.
Mr. Draghi snubbed investors looking for hints on policy and the euro in his Jackson Hole address--see here--on Friday.
The last few years have thrown up surprise after surprise for establishment parties. Mr. Abe's Liberal Democrat Party is about as establishment as they come.
Media reports suggest that the underlying trends in retailing--rising online sales, declining store sales and mall visits--continued unabated over the Thanksgiving weekend.
We covered the detailed German Q1 GDP report in Friday's Monitor--see here--but the investment data could do with closer inspection. The headline numbers looked great.
Bond yields in the Eurozone took another leg lower yesterday.
Brazil's external accounts were a relatively bright spot again last year.
Yesterday's consumer sentiment data in the two major euro area economies were mixed, but they still support our view that a rebound in EZ consumption growth is underway.
The slide in global long-term bond yields, and flattening curves, have spooked markets this year, sparking fears among investors of an impending global economic recession.
It looks as though business and consumer confidence in Korea has brushed off the economic threat of the second Covid-19 wave.
The ECB kept its cool yesterday, at the headline level, amid crashing stock markets, volatile BTPs and souring economic data.
It is becomingly increasingly clear that the trade war with China is hurting manufacturers in both countries.
The ECB will not make any major changes to policy today.
Yesterday's business confidence data in the EZ core were mixed.
Japan's CPI inflation jumped to 1.0% in December from 0.6% in November, driven by food prices.
Whichever way you choose to slice the numbers, consumers' spending is growing much more slowly than is implied by an array of confidence surveys.
Last week's detailed Q3 GDP data in Germany verified that GDP fell 0.2% quarter-on-quarter, down from a 0.5% rise in Q2, a number which all but confirms the key story for the economy over the year as a whole.
Korean real GDP growth rebounded to 1.4% quarter-on-quarter in Q3, from 0.6% in Q2. The main driver was exports, with government consumption also popping, and private consumption was a little faster than we were expecting.
Since the Party Congress last month, China has made a number of bold moves in multiple policy fields, with a regularity that almost implies the authorities are working through a list.
Political uncertainty is starting to dampen housing market activity again.
German retail and consumer sentiment data for March have been mixed this week, but broadly support our call that growth in consumption should pick up soon.
The mortgage market still is defying gravity. U.K. Finance initially reported yesterday that house purchase mortgage approvals by the main high street banks collapsed to 35.3K in February, from 39.6K in January.
The further decline in mortgage approvals in August shows that housing market activity remains very subdued. The recent fall in mortgage rates likely will prop up demand soon, but the poor outlook for households' real incomes suggests that both activity and prices will revive only modestly over the next year.
China's Caixin manufacturing PMI doused hopes of turning over a January new leaf; it dropped to 49.7 in November, from 50.2 in December.
Yesterday's final EZ manufacturing PMIs for August provided little in the way of relief for the beleaguered industrial sector.
The BoJ kept policy unchanged last week, but made a significant change to its communication, dropping its previous explicit statement on the timing for hitting the inflation target.
Japan's unemployment rate has been remarkably steady over the past few months.
Producer price inflation in the euro area almost surely peaked over the summer.
This week's main economic data from Korea--the last batch before the BoK meets on the 16th--missed consensus expectations, further fuelling speculation that it will cut rates for a second time, after pausing in August.
Friday's advance GDP data provided the first solid evidence of a Q1 slowdown in the euro area economy.
The Caixin PMI likely remained stable or even strengthened in January. The December jump was driven by the forward-looking components, with both the new export orders and total new orders indices picking up.
February's money and credit figures supported recent labour market and retail sales data suggesting that consumers are increasingly financially strained. Households' broad money holdings increased by just 0.2% month-to-month in February, half the average pace of the previous six months.
Markets expect the Fed will fail to follow through on its current intention to raise rates twice more this year and three times next year. Part of this skepticism reflects recent experience.
Retail sales in Japan rose modestly in May, after collapsing in March and April, as the government tried to put a lid on the country's Covid-19 outbreak.
Economic data in Mexico continue to come in strong.
Today's FOMC meeting will be the first non-forecast meeting to be followed by a press conference.
Markets were surprised yesterday by the absence of hawkish comments or guidance accompanying the MPC's decision to raise interest rates to 0.50%, from 0.25%.
A robust April payroll number today is a good bet, but a gain in line with the 275K ADP reading probably is out of reach.
The economic data in the Eurozone were mixed while we were away.
We look for a 210K increase in July payrolls. That would be consistent with the message from an array of private sector surveys, as well as the recent trend.
Friday's consumer sentiment data in the two main Eurozone economies were mixed.
Yesterday's October labour market data in Mexico showed that the adjusted unemployment rate rose a bit to 3.4%, from 3.3% in September.
Headline money supply growth in the Eurozone accelerated further at the start of Q2.
China's manufacturing PMIs put in a better performance in November, with the official gauge ticking up to 50.2 in November, from 49.3 in October, and the Caixin measure little changed, at 51.8, up from 51.7.
The U.K. economy retained its momentum last year, despite the seismic shock of the vote to leave the EU. Quarter-on-quarter GDP growth averaged 0.5% in the first three quarters of 2016, matching 2015's rate and the average pace of growth across the Atlantic.
The end of Korea's first Covid-19 wave, coupled with the government's economic support measures, has been a boon for the retail industry.
Speeches by Chair Yellen and Vice-Chair Fischer give the two most important Fed officials the perfect platform today to signal to markets whether rates will rise this month.
Friday's euro area inflation reported capped a difficult week for EZ bondholders, although most of the damage was done beforehand by the advance German data.
Yesterday's sole economic report in the Eurozone confirmed that the economy slowed further at the end of 2018.
The end of China's Party Congress can feel like an endless exercise in reading the tea leaves.
Yesterday's inflation data in the major euro area economies force us to mark down slightly our prediction for today's headline EZ number.
The apparent softness of business capex is worrying the Fed.
The FOMC won't raise rates today, but we expect that the announcement of the start of balance sheet reduction will not be interrupted by Harvey and Irma.
Yesterday's sole economic report in the Eurozone showed that German producer price inflation edged lower at the end of 2018.
November's labour market report provided timely reassurance, after last week's downside data surprises, that the economy did not grind to a halt at the end of last year.
The BoJ kept its main policy settings unchanged yesterday, in another 7-to-2 split.
The stand-out news yesterday was the increase in the headline, three-month average, unemployment rate to 4.4% in December, from 4.3% in September.
A round of recent conversations with investors suggests to us that markets remain quite skeptical of the idea that the recent upturn in capital spending will be sustained.
February's consumer price figures provided hard evidence that the import price shock, caused by sterling's depreciation last year, is filtering through faster than the MPC expected. We expect CPI inflation to continue to exceed the forecast set out in February's Inflation Report.
Japan's all-industry activity index fell 0.5% month-on- month in September after a 0.2% rise in August. Construction activity continued to plummet, with the subindex dropping 2.3%, after a 2.2% fall in August.
CPI inflation picked up to 0.5% in September, from 0.2% in August, when the Eat Out to Help Out Scheme was running.
We still don't have the complete picture of what happened to EZ consumers' spending in Q1, but the initial details suggest that growth acceleretated slightly at the start of the year.
Unlike other central banks, the MPC has stuck to its message that "an ongoing tightening of monetary policy over the forecast period" likely will be required to keep inflation close to the 2% target, provided a no-deal Brexit is avoided.
It's hard to have much conviction in any forecast for September retail sales, as the relationship between the official data and the surveys has weakened considerably.
The Chancellor can go on his Christmas vacation content that the public finances have weathered the economy's slowdown relatively well this year.
This is the final U.S. Economic Monitor of 2017, a year which has seen the economy strengthen, the labor market tighten substantially, and the Fed raise rates three times, with zero deleterious effect on growth.
The MPC's unanimous decision to keep Bank Rate at 0.75% and the minutes of its meeting left little impression on markets, which still see a higher chance of the MPC cutting Bank Rate within the next 12 months than raising it.
The perfect world for equities is one in which earnings and valuations are rising at the same time, but in the Eurozone it seems as if investors have to make do with one or the other.
Chair Yellen remains as committed as ever to the idea that the tightening labor market will eventually push up inflation, but the unexpectedly weak core CPI readings for the past four months have complicated the picture in the near-term.
As we write, markets see a 70% chance that the MPC will cut Bank Rate on January 30.
Fed Chair Yellen said something which sounded odd, at first, in her Q&A at the Senate Banking Committee last Tuesday. It is "not clear" she argued, that the rate of growth of wages has a "direct impact on inflation".
Now that the Fed has abandoned the idea of raising rates this year, despite 3.8% unemployment and accelerating wages, it is very exposed to the risk that the bad things it fears don't happen.
The chances of the first phase of the Brexit saga concluding soon declined sharply last week.
The BoJ left policy unchanged yesterday, but we noted some significant additions and modifications in the statement and the press conference.
August's retail sales figures create a misleading impression that consumers can be relied upon to pull the economy through the next six months of heightened Brexit uncertainty unscathed.
A spell of outright CPI deflation in Japan is just around the corner. Headline inflation slipped to 0.2% in August, from 0.3% in the previous month, as the drag from the discounts backed by the government's "Go To Travel" subsidies more than outweighed the upward pressure from non-core goods.
Today's advance EZ PMIs will be watched more closely than usual.
Germans head to the polls on Sunday to elect representatives for the national parliament. The media has tried to keep investors on alert for a surprise, but polls indicate clearly that Angela Merkel will continue as Chancellor.
Official house price figures confirm that the market is booming.
Consumer confidence in the Eurozone rose marginally at the start of Q4, though it is still down since the start of the year.
Today brings new housing market data, in the form of the weekly applications numbers from the MBA. The weekly data are seasonally adjusted but are still very volatile, especially in the spring.
Eurozone consumers' spending jumped in Q2, but we are pretty certain that a slowdown in retail sales constrained growth in Q3.
Today's ECB meeting will mainly be a victory lap for Mr. Draghi--it is the president's last meeting before Ms. Lagarde takes over--rather than the scene of any major new policy decisions.
Robust demand in the ECB's final TLTRO auction was the main story in EZ financial markets yesterday. Euro area banks--474 in total-- took up €233.5B in the March TLTRO, well above the consensus forecast €110B. To us, this strong demand is a sign that EZ banks are taking advantage of the TLTROs' incredibly generous conditions.
Japan's advance PMI numbers for August suggest that the economy dodged most of the bullets fired by the second wave of Covid-19.
New Covid-19 cases in Mexico have continued to fall steadily over this month, with deaths peaking two weeks ago, as shown in our first chart.
Japan's CPI inflation was unchanged, at 0.2% in February.
Markets cheered soaring business surveys in the Eurozone earlier this week, and recent consumer sentiment data also have been cause for celebration. The advance GfK consumer confidence index in Germany rose to a record high of 10.4 in June, from 10.2 in May.
The participation rate--the proportion of people either in or looking for work--has held steady over the last decade, despite the ageing of the population and the rise in student numbers.
Friday's economic data in Germany left markets with a confused picture of the Eurozone's largest economy.
China's 2018 property market boomlet let out more air last month.
Eurozone consumer confidence remained at its low for the year at the start of Q3.
One of the arguments we hear in favor of an endless Fed pause--in other words, the cyclical tightening is over--is that GDP growth is set to slow markedly this year, to only 2% or so.
Japan's CPI inflation was unchanged in June, at 0.7%, despite strong upward pressure from energy inflation.
The Monetary Policy Committee chose to keep its options open in the minutes of this week's meeting, rather than signal as clearly as it did last year that interest rates will rise very soon.
The knee-jerk reaction of the stock market to the unexpectedly high hourly earnings growth number for January was predicated on two connected ideas.
Before the Covid pandemic struck, the mix-adjusted measure of wages and salaries in the employment costs index was trending up by about 3.0% year-over-year.
On balance, our conviction that the MPC will surprise markets on May 2 by retreating from its dovish stance has risen, following last week's labour and retail sales data.
It's hard to read the minutes of the April 30/May 1 FOMC meeting as anything other than a statement of the Fed's intent to do nothing for some time yet.
Yesterday's advance consumer sentiment index in the Eurozone confirmed the upside risks for consumers' spending in Q4. The headline index rose to a 17- year high of +0.1 in November, from -1.0 in October.
Now that the holidays are just a distant memory, the distortions they cause in an array of economic data are fading. The problems are particularly acute in the weekly data -- mortgage applications, chainstore sales and jobless claims -- because Christmas Day falls on a different day of the week each year.
Sterling jumped last week to its highest level against the dollar since last October in response to news that a general election will be held on June 8. Markets are betting that the Conservative Government will sharply increase its majority, enabling Theresa May to ignore Eurosceptic backbenchers when she strikes a deal with the EU.
The automotive sector accounts for 6.1% of total employment, and 4% of GDP, in the Eurozone.
Japan will host the Olympics in 2020 and the preparatory surge in construction investment makes 2017-to-2018 the peak spending period.
The headline in yesterday's detailed Q1 German GDP data was old news, confirming that growth in the euro area's largest economy slowed at the start of the year.
Last week's final barrage of data showed that EZ headline inflation rose slightly last month, by 0.1 percentage points to 1.5%, driven mainly by increases in the unprocessed food energy components.
Officially, Japanese wages have been falling year- over-year since January, marking a break from the gradual acceleration over the past 18 or so months.
The run-up to the release of the official retail sales figures has become so congested with other indicators, following alterations by the ONS to its publication schedule, that we now have to preview the data earlier than usual.
Brazilian industrial production data released last week were upbeat. Output rose 8.0% month-to-month in July, much better than the consensus forecast for a 5.9% increase.
The two big surprises in the September employment report--the drop in the unemployment rate and the flat hourly earnings number--were inconsequential, when set against the sharp and clear slowdown in payroll growth, which has further to run.
We're expecting to learn this morning that productivity rose by a respectable 1.7% in the year to the fourth quarter, the best performance in nearly four years.
Japanese firms hand out a significant portion of labour compensation through bonuses, with the largest lump awarded in December.
The ink has hardly dried on economists' and the ECB's inflation projections for 2020, but we suspect that some forecasters are already considering ripping up the script.
The ECB will keep all its policy parameters unchanged today. The refi and deposit rates will be maintained at 0.00% and -0.4%, respectively, and the pace of QE will stay at €60B per month, running until the end of the year.
Mr. Draghi and his colleagues erred on the side of maximum dovishness yesterday.
The German economy's engine room continues to stutter.
The housing market perhaps is where the adverse impact of Brexit uncertainty can be seen most clearly.
We aren't perturbed by the undershoot in December payrolls, relative both to the October and November numbers and all the leading indicators.
All the signs are that ADP will today report a solid increase in February private payrolls; our forecast is 200K, but if you twist our arms we'd probably say the mild weather last month across most of the country points to a bit of upside risk.
If our composite index of businesses' hiring plans could speak, it would say: "Told you payrolls were going to go nuts at the end of the year."
The Caixin services PMI fell to 51.5 in August, from 52.8 in July.
The EZ retail sector slowed at the start of Q3, though only slightly.
We would be quite surprised if today's official payroll number exceeded the 135K ADP reading; a clear undershoot is much more likely.
The 351K net increase in payrolls reported Friday--a 261K October gain and a 90K total revision to August and September--puts the labor market back on track after the hurricanes temporarily hit the data.
The collapse in global demand last month will have derailed China's trade recovery, causing exports to drop unpleasantly month-on-month after the bounce of around 45% in March; the January/February breakdown is not provided, so we can't be sure of the extent of the March rebound.
Over the past six months, payroll growth has averaged exactly 150K. Over the previous six months, the average increase was 230K. And in the six months to August 2015--a fairer comparison, because the fourth quarter numbers enjoy very favorable seasonals, flattering the data--payroll growth averaged 197K.
Japanese average cash earnings posted a surprise drop of 0.4% year-over-year in June, down from 0.6% in May and sharply below the consensus for a rise of 0.5%. The decline was driven by a fall in the June bonus, by 1.5%.
Inflation in the Eurozone fell significantly last month, and probably will ease further in Q1.
We're sticking to our 220K forecast for today's official payroll number, despite the slightly smaller-than- expected 179K increase in the ADP measure of private employment.
We were a bit disappointed by the November ADP employment report, though a 190K reading in the 102nd month of a cyclical expansion is hardly a disaster.
...The Fed did nothing, surprising no-one; the labor market tightened further; the housing market tracked sideways; survey data mostly slipped a bit; and oil prices jumped nearly $4, briefly nudging above $50 for the first time since May.
At their March meeting FOMC members' range of forecasts for the unemployment rate in the fourth quarter of this year ranged from 4.4% to 4.7%, with a median of 4.5%. But Friday's report showed that the unemployment rate hit the bottom of the forecast range in April.
This week's MPC meeting and Inflation Report likely will support the dominant view in markets that the chances of a 2017 rate hike are remote, even though inflation will rise further above the 2% target over the coming months. Overnight index swap markets currently are pricing-in only a 20% chance of an increase in Bank Rate this year.
Core producer price inflation is falling, and it probably has not yet hit bottom.
The undershoot in April payrolls, relative to the consensus, is a story of a fluke number in just one sector. Retail payrolls reportedly shrank by 3K, after rising by an average of 52K over the previous six months. Our first chart shows clearly that the retail payrolls are quite volatile over short periods, with sudden and often inexplicable swings in both directions quite common.
We just can't get away from the deeply vexed question of wages; specifically, why the rate of growth of nominal hourly earnings has risen only to just over 2.5%, even though the historical relationship between wage gains and the tightness of the labor market points to increases of 4%-plus.
We'd be quite surprised if the headline payroll number today turned out to be far from the consensus, 205K, or our forecast, 225K.
We predict no major policy changes at the ECB today. We think the central bank will leave its main refinancing and deposit rates unchanged at 0.00% and -0.4%, respectively. We also expect the ECB will leave the pace of QE unchanged at €60 per month until December 2017, at least.
At a stroke, the October payroll report returned the short-term trend in payroll growth to the range in place since 2011, pushed the unemployment rate into the lower part of the Fed's Nairu range, and lifted the year-over-year rate of growth of hourly earnings to a six-year high. The FOMC has never quantitatively defined what it means by "some further improvement in the labor market", its condition for increasing rates, but if the October report does not qualify, it's hard to know what might fit the bill. We expect a 25bp increase in December.
Japan's current account surplus has been broadly stable in absolute terms in the last couple of years, though it has retreated as a share of GDP.
The escalation of the second wave of Covid-19 in Japan in July did little to stop the recovery in labour cash earnings growth.
China's export data for April were a mixed bag, to say the least.
The PBoC cut the Reserve Requirement Ratio late on Friday--as signalled at last Wednesday's State Council meeting--by 0.5 percentage points, to be implemented from September 16.
The dip in payroll growth in September was due to Hurricane Florence. We expect a clear rebound in payrolls in October; our tentative forecast is 250K.
We expect August's GDP figures, released on Wednesday, to show that month-to-month growth slowed to 0.1%, from 0.3% in July.
We expected a consensus-beating ADP employment number for February, but the 298K leap was much better than our forecast, 210K. The error now becomes an input into our payroll model, shifting our estimate for tomorrow's official number to 250K; our initial forecast was 210K.
Labour cash earnings in Japan ostensibly started the year strongly, jumping by 1.5% year-over-year in January, much better than December's 0.2% slip.
The soft-looking August payroll number almost certainly will be revised up substantially, as the readings for this month have been in each of the past six years. Runs of remarkably consistent revisions--from 53K to 104K, with a median of 66K--don't happen by chance very often. A far more likely explanation is that the seasonal adjustments are flawed, having failed to keep up with changes in employment patterns since the crash. If the median revision is a good guide to what happens this year, the August number will be pushed up to 240K, in line with our estimate of the underlying trend and much more closely aligned with the message from a host of leading indicators.
March payrolls were constrained by both the impact of colder and snowier weather than usual in the survey week, and a correction in the construction and retail components, which were unsustainably strong in February.
Japan's average monthly labour earnings growth tumbled to 0.9% year-over-year in August, from 1.6% in July. This is not a disaster.
We are not political analysts or psephologists, but we note that each of the nine separate election forecasting models tracked by the New York Times suggests that Hillary Clinton will be president, with odds ranging from 67% to greater than 99%.
The Fed today will do nothing to rates and won't materially change the language of the post-meeting statement.
China has a nuclear option in the face of pressure from U.S. tariffs, namely, to devalue the currency.
We have two competing explanations for the unexpected leap in November payrolls. First, it was a fluke, so it will either be revised down substantially, or will be followed by a hefty downside correction in December.
China's official manufacturing PMI slipped in June, but the overall picture for Q2 is sound despite the uncertainty posed by rising trade tensions with the U.S.
Brazil's industrial sector is still struggling, despite recent signs of better economic and financial conditions.
We already know that the month-to-month movements in the key labor market components of the December NFIB small business survey were mixed; the data were released last week, ahead the official employment report, as usual.
In Friday's Monitor we analysed the draft Japanese budget, as reported by Bloomberg. We suggested that the GDP bang-for-government-expenditure- buck is likely to be less than that implied by the authorities' forecasts.
Yesterday's final PMI data for February confirmed the story from the advance reports.
Survey data continue to suggest that GDP growth will accelerate in Q1. The final PMI reports on Friday showed that the headline EZ composite index rose to 56.0 in February, from 54.4 in January, in line with the first estimate.
The days of +2% inflation in the Eurozone are long gone. Data on Friday showed that the headline rate slipped to 1.4% year-over-year in January, from 1.6% in December, thanks to a 2.9 percentage point plunge in energy inflation to 2.6%.
Investors have revised down their expectations for interest rates since the November Inflation Report and now only a 50% chance of a 25bp hike in Bank Rate is priced-in by the end of this year.
Where to start with the January employment report, where all the key numbers were off-kilter in one way or another?
Yesterday's economic reports added to the evidence the euro area economy as a whole is showing signs of resilience in the face of still-terrible conditions in manufacturing.
Today's October ADP measure of private payrolls likely will overshoot Friday's official number.
The labour market in Germany tightened further at the end of last year. The headline unemployment rate--unemployment claims as a share of the labour force--fell to 5.5% in December, from 5.6% in November, driven by a 29K plunge in claims.
Data yesterday showed that Momentum in the EZ retail sector stumbled through middle of Q2.
Japan's jobless rate inched up to 2.5% in January, from 2.4% in December.
The recent increases in single-family housing construction are consistent with the rise in new home sales, triggered by the substantial fall in mortgage rates over the past year.
Investors focussed last week on Chair Powell's semi-annual Monetary Policy Testimony, but he said nothing much new.
The most positive thing to say about the EZ manufacturing PMI at the moment is that it has stopped falling.
We were surprised to see Japan's services PMI edging up to 51.9 in June, from 51.7 in May. We attributed apparent service sector resilience in April and May to the abnormally long holiday this year.
The Chancellor's decision immediately to spend all the proceeds from the OBR's upgrade to its projections for tax receipts appears to leave his plans exposed to future adverse revisions to the economic outlook.
The Japanese unemployment rate fell again in September, to 2.3% from 2.4%. In the same vein, the job-to-applicant ratio rose to 1.64, from 1.63.
The jobless rate fell back to 2.8% in June after the surprise rise to 3.1% in May. This drop takes us back to where we were in April before voluntary unemployment jumped in May.
The pullback in CPI inflation in June and continued slow GDP growth in Q2 mean that the MPC almost certainly will keep Bank Rate at 0.25% on Thursday.
Chair Yellen's final FOMC meeting today will be something of a non-event in economic terms.
Yesterday's first estimate of full-year 2019 GDP in Mexico confirmed that growth was extremely poor, due to domestic and external shocks.
The upward trend in German inflation stalled temporarily in August, with an unchanged 0.4% year-over-year reading in August. A dip in core inflation likely offset a continued increase in energy price inflation. The detailed final report next month will give the full story, but state data suggest that the core rate was depressed by a dip in price increases of household appliances, restaurant services, as well as "other goods and services."
The most important number, potentially, in today's wave of economic reports is the Employment Costs Index for second quarter.
Japan's June retail sales data add to the run of numbers suggesting a strong rebound in real GDP growth in Q2, after the 0.2% contraction in activity in Q1.
Today's advance Q3 GDP report for Mexico will show that the economy performed relatively well at the start of the second half, despite external and domestic shocks.
In yesterday's Monitor we suggested that China's profits surge has been party dependent on developers' risky debt issuance practices.
Many investors probably glossed over yesterday's barrage of data in the Eurozone, for fear of being caught out by another swoon in Italian bond yields. Don't worry, we are here to help.
Today's advance EZ CPI report likely will show that inflation pressures eased in May. We think inflation slipped to 1.5% year-over-year, from 1.9% in April, as the boost to the core rate from the late Easter faded.
The Eurozone enjoyed a strong start to 2017. Yesterday's advance data showed that real GDP rose 0.5% quarter-on-quarter in Q1, a similar pace to Q4, which was revised up by 0.1 percentage points. The year-over-year rate dipped to 1.7%, from an upwardly revised 1.8% in Q4.
The unexpectedly robust 128K increase in October payrolls--about 175K when the GM strikers are added back in--and the 98K aggregate upward revision to August and September change our picture of the labor market in the late summer and early fall.
Your correspondent is on the slopes this week, but the employment report deserves a preview nonetheless.
The rise in the Markit/CIPS services PMI to a nine-month high of 51.4 in July, from 50.2 in June, isn't a game-changer, though it does provide some reassurance that the economy isn't on a downward spiral.
We've been surprised by the fast rate of Japanese GDP growth in the first half, though the Q1 pop merely was due to a plunge in imports.
Data yesterday showed that EZ consumers' spending was off to a bad start in the third quarter.
Yesterday's economic reports in the Eurozone will rekindle the debate on hard versus soft data. The final composite PMI rose to 56.7 in September, from 55.7 in August, in line with the first estimate.
China's PMIs point to softening activity in Q3. The Caixin services PMI fell to 52.8 in July, from 53.9 in June.
We are not worried, at all, by the slowdown in headline payroll growth to 157K in July from an upwardly-revised 248K in June.
China's service sector slowed again in June, with the Caixin PMI falling to 51.6 from 52.8 in May. The Q2 average of 52.0 was only minimally lower than the 52.6 in Q1.
The ADP private sector employment number was a bit weaker than we expected in May, and the undershoot relative to our forecast has pulled down our model's estimate for today's official number
The jump in the Caixin services PMI in the past two months looks erratic, with holiday effects playing a role, though there could be more going on here.
Consumers' spending in the Eurozone stalled at the start of Q4. Retail sales slid 1.1% month-to-month in October, pushing the year-over-year rate down to a four-year low of 0.4%, from an upwardly-revised 4.0% jump in September.
October payrolls were stronger than we expected, rising 128K, despite a 46K hit from the GM strike.
Services will bear the brunt of the Covid-19 shock in the euro area, but manufacturing is not far behind.
The economic slowdown in China is old news for Eurozone investors.
Two approaches to forecasting payrolls have been the most useful in recent months, and both point to August payrolls rising by less than the 1,350K consensus; our forecast is 750K.
We set out in detail yesterday, here, why we think the official payroll number today will be better than the 129K ADP reading; we look for 160K.
China's current account surplus was revised down last week to $46.2B in Q2, from $57.0B in the preliminary data, marking a dip from $49.0B in Q1.
For analysts with a broadly positive view of the U.S. economy, it is tempting to argue that the slowdown in payroll growth this year reflects supply constraints, as the pool of qualified labor dries up.
The economic and political backdrop to this week's Monetary Policy Committee meeting is significantly more benign than when it last met on September 19.
Data last Friday showed Japan's labour market trends deteriorating.
We're pretty sure that the unemployment rate didn't drop by 0.3 percentage points in November. We're pretty sure hourly earnings didn't fall by 0.1%. And we're pretty sure payrolls didn't rise by 178K. All the employment data are unreliable month-to-month, with the wages numbers particularly susceptible to technical quirks.
We set out the reasoning behind the big upward revision to our payroll forecast yesterday, in the wake of the much better-than-expected ADP report.
If you were looking just at investor sentiment in the Eurozone, you would conclude that the economy is in recession.
We expect to see a 160K increase in June payrolls today, though uncertainty over the extent of the rebound after June's modest 75K increase means that all payroll forecasts should be viewed with even more skepticism than usual.
We've previously highlighted the pro-cyclical elements of the BoJ's framework, but it's worth repeating, when an economic shock comes along.
Cast your mind forward to late October 2018. The Fed is preparing to meet next week. What will the economy look like? The key number is three.
The economy's fragility was underlined by the Q3 national accounts, released just before the Christmas break.
Today's rate hike will be accompanied by a new round of Fed forecasts, which will have to reflect the faster growth and lower unemployment than expected back in September.
Japan's GDP growth came roaring back in Q2, thanks to a strong rebound in private consumption, and an acceleration in business capex.
Whatever happened to consumers' sentiment in March, the level of University of Michigan's index will be very high, relative to its long-term average.
Yesterday's labour market data showed that growth in households' income has slowed significantly in recent months. Firms are both hiring cautiously and restraining wage increases, due to heightened uncertainty about the economic outlook and rising raw material and non-wage labour costs. Consumers' spending, therefore, will support GDP growth to a far smaller extent this year than last.
The pick-up in CPI inflation to 3.1% in November--its highest rate since March 2012-- from 3.0% in October, shouldn't alarm the MPC at this week's meeting.
The falling unemployment rate and the threat it poses to the inflation outlook mean that the labor market numbers in the NFIB small business survey attract more attention than the other data in the report.
Yesterday's economic data in Brazil suggest that retailers suffered in the second quarter, hit by the effect of the truckers' strike, but private consumption remains somewhat resilient.
Here's the bottom line: U.S. businesses appear to have over-reacted to the impact of the trade war in their responses to most surveys, pointing to a serious downturn in economic growth which has not materialized.
The underlying trend in the core CPI is rising by just under 0.2% per month, so that has to be the starting point for our January forecast.
The fact that Italy's economy is in poor shape will not surprise anyone following the euro area, but the advance Q4 GDP headline was astonishingly poor all the same.
Households have been a rock of stability over the last two years, increasing their real spending at a steady rate of 1.8% year-over-year, while the rest of the economy collectively has ground to a halt.
The imposition of 10% tariffs on $200B-worth of Chinese imports is not a serious threat either to U.S. economic growth--the tariffs amount to 0.1% of GDP--or inflation.
China faces three possible macro outcomes over the next few years. First, the economy could pull off an active transition to consumer-led growth. Second, it could gradually slide into Japan-style growth and inflation, with government debt spiralling up. Third, it could face a full blown debt crisis, where the authorities lose control and China drags the global economy down too
Chair Yellen has become quite good at not giving much away at her semi-annual Monetary Policy Testimony.
Economic data in the German economy have been record-breaking in the past 12 months, and yesterday's preliminary full-year GDP report for 2017 was no exception.
Apart from a slew of economic data--see here and here--two important things happened in Germany last week.
We continue to expect core CPI inflation to drift up further over the course of this year, partly because of adverse base effects running through November, but it's hard to expect a serious acceleration in the monthly run rate when the rate of increase of unit labor costs is so low.
It's hard to find anything to dislike in the February employment report.
Oil prices remain sticky, poised to hover close to a four-year high for the rest of the year.
The Monetary Policy Committee of the Reserve Bank of India voted unanimously on Friday to keep the repo rate unchanged, at 4.00%, as widely expected. The six members also retained an "accommodative" stance.
Yesterday's industrial production numbers in Germany were similar to Friday's confusing new orders data.
Friday's industrial production headlines in the Eurozone were weak, but the details tell a more nuanced story.
The final June inflation report from Germany yesterday confirmed that pressures are rising. Inflation rose to 0.3% year-over-year in June, up from 0.1% in May, mainly due to higher energy prices. Household energy prices--utilities--fell 4.9% year-over-year, up from a 5.7% decline in May, while deflation in petrol prices eased to -9.4%, up from -12.1% in May.
For more than two years, the BoJ has fretted, in the outlook for economic activity and prices, that "there are items for which prices are not particularly responsive to the output gap."
German inflation data are more noise than signal at the moment.
The key labor market numbers from today's August NFIB survey of small businesses have already been released--they appear a day or two before the employment report--but they will be reported as though they are news. The headline hiring intentions reading dipped to nine from 12, leaving it near the bottom of the range of the past couple of years.
In theory, the headline labour market data in France should be a source of comfort and support for the new government.
Today's labour market report likely will show that employment continued to grow briskly over the summer, but that wage gains still are lagging well behind inflation.
July's fifth straight undershoot to consensus in the core CPI was very different the previous four. Only one component--lodging away from home--prevented the first 0.2% month-to-month print since February.
Turkey has all the problems you don't want to see in an emerging market when the U.S. is raising interest rates.
Today's Eurozone data will provide further details on what happened in Q4. Advance data suggest that industrial production rose a modest 0.1% month- to-month, lifting the year-over-year rate to 4.3% in December, from 3.9% in November.
The consensus for a mere 0.3% month-to-month rise in retail sales volumes in November looks too timid; we anticipate a 0.7% gain.
Today's labour market figures likely will bring further signs that firms are recruiting more cautiously and limiting pay awards, due to still-elevated economic uncertainty.
Brazil's consumer recession seems never-ending. Retail sales fell 0.8% month-to-month in October, pushing the headline year-over-year rate down to -8.2% in October, from -5.7% in September. Recent financial market volatility, credit restrictions and the ongoing deterioration of the labour market continue to hurt consumers.
The third straight 0.3% increase in the core CPI-- that hasn't happened since 1995--was ignored by the Treasury market yesterday, which appeared to be focusing its attention on the ECB.
The outlook for private investment in the Eurozone has deteriorated this year, especially in manufacturing.
The core CPI inflation rate rose in April to 2.1% from 2.0%, thanks to unfavorable rounding, despite the below consensus 0.14% month-to-month print.
With rates now certain to rise this week, the real importance of the employment picture is what it says about the timing of the next hike. To be clear, we think the Fed will raise rates again in June, and will at that meeting add another dot to the plot, making four hikes this year.
Germany's external surplus remained resilient at the start of the year. Data on Friday showed that the seasonally adjusted trade surplus rose marginally to €18.5B in January, from a revised €18.3B in December.
We have been puzzled in recent months by the sudden and substantial divergence between the Redbook chainstore sales numbers and the official data.
The rate of deterioration in the labour market remains gradual enough for the MPC to hold back from cutting Bank Rate over the coming months.
The consensus forecast for the October core CPI, which will be reported today, is 0.2%. Take the over. Nothing is certain in these data, but the risk of a 0.3% print is much higher than the chance of 0.1%.
PPI inflation has finally started to soften, after having increased steadily from 2.0% in April, and holding steady at 3.0% in Q3.
As a general rule, faster productivity growth is always good news.
The political situation in Spain remains an odd example of how complete gridlock can be a source of relative stability.
The sudden jump in the headline, three-month average, growth rate of average weekly wages to a 10-year high of 3.3% in October, from just 2.4% four months earlier, might indicate that the U.K. has reached the sharply upward-sloping part of the Phillips Curve.
A cursory glance at July's labour market report gives no cause for alarm. The headline, three-month average, unemployment rate returned to 3.8% in July, after edging up to 3.9% in June.
The monthly survey of small businesses conducted by the National Federation of Independent Business is quite sensitive to short-term movements in the stock market, so we're expecting an increase in the November reading, due today.
The early Q4 hard data in Germany recovered a bit of ground yesterday.
March's consumer price figures, released tomorrow, look set to show that inflation's ascent was kept in check by the later Easter this year compared to last. Nonetheless, CPI inflation will take big upward strides over the coming months, and it likely will exceed 3% by the summer.
MPC member Michael Saunders, who has voted to raise interest rates at the last two MPC meetings, argued in a speech yesterday that tighter monetary policy is required now partly because it affects the economy with a long lag.
Larry Summers stirred the pot yet again with an article in the FT at the weekend, arguing that because the Fed typically eases by more than 300bp to pull the economy out of recession, "the chances are very high that recession will come before there is room to cut rates enough to offset it". This follows from his view that the neutral level of real short rates has fallen so far that "the odds are the Fed will not be able to raise rates 100 basis points a year without threatening to undermine recovery".
Friday was a busy day in the Eurozone. The final and detailed GDP report confirmed that growth in the euro area slowed to 0.2% quarter-on-quarter in Q3, from 0.4% in Q2, with the year-over-year rate slipping by 0.6 percentage points to 1.6%, just 0.1pp below the first estimate.
For some time now we have argued that collapse in capital spending in the oil sector was the source of most of the softening of activity in the manufacturing and wholesaling sectors last year.
Our forecast of a solid 190K increase in headline December payrolls ignores our composite employment indicator, which usually leads by about three months and points to a print of just 50K or so.
China's January trade data were scheduled for release on Friday, but instead, the customs authority delayed the publication, saying it would publish the numbers with the February data
China's FX reserves rose to $3,062B in November, from $3,053B on October. On the face of it, the increase is surprising.
The worst of the pandemic seems to be over in many countries in LatAm, allowing a gradual reopening of their economies.
A firmer picture is emerging of how Japan's economy fared in Q3, in light of the latest slew of data for August.
Friday's inflation data in the Eurozone were a mixed bag.
Inflation in the Eurozone rose modestly last month. Yesterday's advance CPI report showed the headline rate rising to 0.6% year-over-year in November, from 0.5% in October, mainly because of a jump in fresh food inflation. Energy prices fell 1.1% year-over-year, slightly more than the 0.9% decline in October, but we expect a sharp increase over the next six months.
Japan's unemployment rate returned unexpectedly to its 26-year low of 2.3% in February, falling from 2.5% in January.
Private sector payroll growth has averaged 190K over the past year, but the six-month average has slowed to 150K. The downshift is consistent with the weakening in survey-based measures of hiring intentions, which began to soften at the turn of the year.
Yesterday's advance EZ CPI report bolstered the ECB doves' case for only marginal adjustments to the language on forward guidance at next week's meeting. Inflation in the euro area fell to 1.4% in May, from 1.9% in April, constrained by almost all the key components.
Strong fundamentals have supported private consumption in Mexico recently, but we now expect a slowdown. Spending will not collapse, though, because consumer credit growth, formal employment, real wage income and remittances will continue to underpin consumption for the next three-to-six months.
The latest national accounts show that the economy is holding up much better in the face of heightened Brexit uncertainty than previously thought.
The ECB will be satisfied, and a bit relieved, with yesterday's economic data in the Eurozone.
The BoJ kept monetary policy unchanged yesterday, as expected, with the signal coming through loud and clear: Japan's central bank will continue its aggressive easing policy until the inflation cows come home...
Yesterday's advance CPI data for the major EZ economies suggest that today's report for the euro area as a whole will undershoot the consensus slightly.
For some time now, we have puzzled over the softness of small firms' capital spending intentions, as measured by the monthly NFIB survey.
In an interview with Bloomberg on Friday, PBoC Governor Yi Gang hinted at the intended policy if the trade war escalates.
China's trade surplus has been trending down in the last two years.
At least some investors clearly were expecting Fed Chair Powell yesterday to offer a degree of resistance to the idea that a rate cut at the end o f this month is a done deal.
A reader pointed out Friday that the standard measurement of the impact of the weather on January payrolls--the number of people unable to work due to the weather, less the long-term average--likely overstated the boost from the extremely mild temperatures.
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
The resolution of tensions in Italy and aboveconsensus U.K. PMIs for May last week persuaded investors that the MPC likely will press on and raise interest rates soon.
The Fed will raise rates by 25 basis points on Wednesday, but as usual after a widely-anticipated policy decision, most of our attention will be focused on what policymakers say about their actions, and how their views on the economy have changed.
The single most startling development in the labor market data in recent months is acceleration in labor force growth. The participation rate has risen only marginally, because employment has continued to climb too, but the absolute size of the labor force is now expanding at its fastest pace in nine years, up 1.9% in the year to September.
China's October foreign trade headlines beat expectations, but the year-over-year numbers remain grim, with imports falling 6.4%, only a modest improvement from the 8.5% tumble in September.
The 20K increase in February payrolls is not remotely indicative of the underlying trend, and we see no reason to expect similar numbers over the next few months.
April's GDP data give a grim firs t impression, though the details provide reassurance that the economy isn't on the cusp of a recession.
Japan's Q3 real GDP growth was revised up substantially to 0.6% quarter-on-quarter in the final read, compared with 0.3% in the preliminary report.
The 16-page document--see here--detailing the agreement allowing the EU and the U.K. to move forward in the Brexit negotiations is predictably tedious.
We have been rigorous in using the word nascent whenever referring to Japan's wage-price spiral.
Private consumption in Japan will take time to recover, even if some semblance of normality returns from this month.
Yesterday's third and detailed EZ GDP data confirmed the economy hit the wall in Q1.
Payroll growth has slowed, no matter how you slice and dice the numbers.
Neither the 33K drop in September payrolls nor the 0.5% jump in hourly earnings tells us anything about the underlying state of the labor market.
The Mexican economy's brightest spot continues to be private consumption.
First things first: Payroll growth likely will be sustained at or close to November's pace.
A reader sent us last week a series of five simple feedback loops, all of which ended with the Fed remaining "cautious". For example, in a scenario in which the dollar strengthens--perhaps because of stronger U.S. economic data--markets see an increased risk of a Chinese devaluation, which then pummels EM assets, making the Fed nervous about global growth risks to the domestic economy.
Japan's labour cash earnings rose by 1.5% year-over- year in July, a strong result in the Japanese context, if it hadn't been preceded by the 3.6% leap in June.
Many economists describe the EZ as the sick man of the global economy, thanks to its incomplete monetary union, low productivity growth and a rapidly ageing population.
On all accounts, growth in France has been modest in the past six-to-12 months, but in relative terms, the French economy is slowly but surely asserting itself as one of the key engines of growth in the EZ.
The headline employment numbers masked an otherwise sub-par December labour market report.
In the short-term, all the housing data are volatile. But you can be sure that if the recent pace of new home sales is sustained, housing construction will rise.
Recession, rising unemployment and disinflation remain the main themes for economists in the context of charting the course of the Covid-19 crisis.
Yesterday's final CPI report confirmed that inflation in the EZ fell marginally in August, by 0.1 percentage points to 2.0%.
The BoE has lived up to its reputation again as one of the most unpredictable central banks.
Friday's data confirmed that inflation in the Eurozone slipped to a 14-month low of 1.1%, from 1.3% in January, 0.1 percentage points below the first estimate.
Today's employment report in the euro area should extend the run of positive labour market data. We think employment rose 1.4% year-over-year in Q1, accelerating marginally from a 1.2% increase in Q4.
Retail sales fell back to earth in September, indicating that the pick-up in spending over the summer largely was a weather-related blip.
The rate that labour market slack is being absorbed has slowed, potentially giving the MPC breathing space to postpone the first rate rise beyond next month.
It's been a sobering couple of months in the Eurozone economy.
The Eurozone's external surplus weakened at the start of Q3.
For the record, we think the Fed should raise rates in December, given the long lags in monetary policy and the clear strength in the economy, especially the labor market, evident in the pre-hurricane data.
The EZ manufacturing data have shown signs of a rebound in the auto sector recently.
We became more confident last week in our call that GDP growth will hold up better than widely feared in the first half of 2019, following signs that consumers have maintained their happy-go-lucky mentality, despite the ongoing political crisis.
The BoJ is likely to stay on hold this week for all its main policy settings.
The labour market remains healthy enough to persuade the MPC to keep its powder dry over the coming months.
Momentum in the EZ auto sector rebounded at the end of the second quarter.
CPI inflation held steady at -0.1% in October, matching its lowest rate since March 1960. We had expected the rate to tick down to -0.2%, but the rebound in clothing inflation in October, following a period of discounting in September, was larger than we had anticipated. Looking ahead, we can be fairly confident that CPI inflation will pic k up sharply over the coming months.
Our colleagues have been telling some unpleasant stories recently.
You'd be hard-pressed to read the minutes of the September FOMC meeting and draw a conclusion other than that most policymakers are very comfortable with their forecasts of one more rate hike this year, and three next year.
A November interest rate rise is far from the done deal that markets still anticipate, even though CPI inflation rose to 3.0% in September from 2.9% in August.
A no-deal Brexit is a remote possibility. The U.K. government and EU are closing in on a deal and Brexiteers within the Conservative party have failed, so far, to trigger a confidence vote on Mrs. May's leadership.
The Caixin manufacturing PMI rebounded to 51.1 in July from 50.4 in June, soundly beating the consensus for no change. The PMIs are seasonally adjusted but the data are much less volatile on our adjustment model. On our adjustment, the headline has averaged 50.9 so far this year, modestly higher than in the second half of last year.
Inflation in the Eurozone eased at the start of Q3.
The biggest surprise in the recent inflation numbers has been the surge in the PCE measure of hospital services costs, where the year-over-year rate has jumped to 3.8% in February, an eight-year high, from just 1.3% in September.
The Japanese government's plan to smooth out the consumption cliff-edge generated by October's sales tax hike is either going too well, or consumers now are facing fundamental headwinds.
We're expecting the first look at August employment, in the form of today's ADP report, to fall short of the 1,000K consensus forecast; we look for 500K.
German survey data did something out of character yesterday; they fell. The IFO business climate index declined to 117.2 in December from a revised 117.6 in November.
CPI inflation fell to 2.3% in November--its lowest rate since March 2017--from 2.4% in October, and it remains on track to fall rapidly over the winter.
While financial markets remain obsessed with the Brexit saga, January's labour market data provided more evidence yesterday that the economy is coping well with the heightened uncertainty.
We expect the Fed today to shift its dotplot to forecast one rate hike this year, down from two in December and three in September.
Friday's detailed euro area CPI report for December confirmed that inflation pushed higher at the end of last year. Headline inflation increased to 1.3% year-over- year, from 1.0% in November, lifted primarily by higher energy inflation, rising by 3.4pp, to +0.2%. Inflation in food, alcohol and tobacco also rose, albeit marginally, to 2.1%, from 2.0% in November.
The FOMC did the minimum expected of it yesterday, raising rates by 25bp--with a 20bp increase in IOER--and dropping one of its dots for 2019.
The recent sell-off in Treasuries has not yet reached significant proportions.
China's Caixin manufacturing PMI was unchanged at 51.0 in October, continuing the sideways trend this year.
China's official PMIs paint a picture of robust momentum going into 2018 but we find this difficult to reconcile with the other data.
The FOMC statement did enough to keep alive the idea that rates could rise in March, but the ball is now mostly in Congress' court. If a clear plan for substantial fiscal easing has emerged by the time of the meeting on March 15, policymakers can incorporate its potential impact on growth, unemployment and inflation into their forecasts, then a rate hike will be much more likely.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
The FOMC did nothing yesterday and said nothing significantly different from its June statement, as was universally expected.
The economy slowed less than we expected in 2017.
ADP's measure of May private payrolls undershot the official estimate by 5.6 million, surprising everyone after it nailed the April catastrophe.
Data on Friday showed that the downward trend in Brazil's unemployment continued into this year. The unadjusted unemployment rate fell to 11.2% in January, slightly below the consensus, and down from 12.0% in January last year.
The May auto sales numbers probably will be released just after our deadline at 4pm eastern time today, but all the signs are that a hefty rebound will be reported after April's plunge to just 8.6M, not much more than half the pre-Covid level.
The 253K increase in May private payrolls reported by ADP yesterday was some a bit stronger than our 225K forecast. Plugging the difference between these numbers into our payroll model generates our 210K forecast for today's official number.
Last week's comments by Mr. Draghi--see here-- indicate that the ECB is increasingly confident that core inflation will continue to move slowly towards the target of "below, but close to 2%", despite elevated external risks, and marginally tighter monetary policy.
For the record, we think the Fed should raise rates in December, given the long lags in monetary policy and the clear strength in the economy, especially the labor market, evident in the pre-hurricane data.
The German economy fired on all cylinders at the beginning of the year. Advance data on Friday showed that real GDP rose 0.6% quarter-on-quarter, accelerating from a 0.4% increase in Q4.
The German inflation rate soared at the start of 2017, but it likely will fall in the next few months. Final February data yesterday showed that inflation rose to 2.2% in February, from 1.9% in January, consistent with the initial estimate. Since December, headline inflation in Germany, and in the EZ as a whole, has been lifted by two factors. Base effects from the 2016 crash in oil prices have pushed energy inflation higher, and a supply shock in fresh produce--due to heavy snowfall in southern Europe--has lifted food inflation.
Today's MPC meeting and minutes are the first opportunity for Committee members to speak out in over a month, now that election "purdah" rules have lifted.
In our Monitor of January 10, we argued that the market turmoil in Q4 was largely driven by the U.S.- China trade war, and that a resolution--which we expect by the spring, at the latest--would trigger a substantial easing of financial conditions.
Yesterday's inflation data in Germany were old news to markets, but the details were spectacular all the same.
Japanese leading indicators point to a slowdown, and the trend over this volatile year is emerging as firmly downward.
Inflation pressures in France eased across the board at the end of last year.
January's retail sales figures look set to show that growth in consumers' spending remains stuck in low gear.
July's retail sales figures--the first official data for Q3--provided a reassuring signal that consumers can be counted on to drive the economy as the Brexit deadline nears.
The MPC surprised markets, and ourselves, yesterday with the escalation of its hawkish rhetoric in the minutes of its policy meeting.
The unexpected rise in CPI inflation to 2.1% in July--well above the Bank of England's 1.8% forecast and the 1.9% consensus--from 2.0% in June undermines the case for expecting the MPC to cut Bank Rate, in the event that a no-deal Brexit is avoided.
Chile's central bank left rates unchanged on Tuesday for the fourth consecutive month, as recent data confirmed the sluggish pace of the economic recovery and inflation edges down closer to the target range. In the statement accompanying the decision, the BCCh kept its tightening bias, saying that the normalisation of monetary policy needs to continue at a data-dependent pace, in order to achieve its 3% target.
Yesterday's EZ industrial production data for January confirmed the string of positive advance numbers from most of the individual economies.
Unemployment in France remains high, but the trend is turning. The mainland rate of joblessness fell to a five-year low of 8.6% in Q4, and yesterday's employment report continued the good news.
The stand-out news from August's labour market report was the pick-up in the headline three-month average rate of year-over-year growth in average weekly wages, excluding bonuses, to 3.1%--its highest rate since January 2009--from 2.9% in July.
A huge wave of data will break over markets this week, along with the FOMC meeting, new dot plots and Chair Yellen's press conference. But today is calm, with no significant data releases and no Fed speeches; policymakers are in purdah ahead of the meeting.
As expected, the Chancellor kept his powder dry in the Spring Statement, preferring instead to wait for the Budget in the autumn to deploy the funds technically available to him to support the economy.
The fall in CPI inflation to just 1.5% in October-- its lowest rate since November 2016--from 1.7% in September, isn't a game-changer for the monetary policy outlook.
The 0.4% August core CPI print was close to our expectations, and it likely will look much the same in September and October, driven by the same forces.
Friday's data added further colour to the September CPI data for the Eurozone.
Soft September data in Germany and Italy suggest that today's industrial production report in the Eurozone will be poor. Our first chart shows that data from the major EZ economies point to a 0.8% month-to- month fall in September.
Sterling received a shot in the arm yesterday following the release of the minutes of the MPC's meeting, which revealed that three members voted to raise interest rates to 0.50%, from 0.25% currently. Markets and economists--including ourselves--had expected another 7-1 split, but Ian McCafferty and Michael Saunders switched sides and joined Kristin Forbes in seeking higher rates.
With just days to go until the Government triggers Article 50, the consensus view remains that Britain is heading for a "hard" Brexit, which will leave it without unrestricted access to the single market and outside the customs union. We think this view overlooks how political pressures likely will change over the next two years.
Yesterday's labour cost data in the EZ are misleading. Eurostat's headline index jumped by 3.4% year-over-year in Q1, accelerating from a revised 2.3% increase in Q4,
The MPC will have to issue fresh, dovish guidance in order to satisfy markets on Thursday, which now think the Committee is more likely to cut than raise Bank Rate within the next six months.
Labour costs are rising so quickly that the MPC cannot justify an "insurance" cut in Bank Rate to counteract the impending damage from Brexit uncertainty in the run-up to the October deadline.
When the MPC last met, on November 2, it attempted to persuade markets that Bank Rate would need to rise three times over the next three years to keep inflation close to the 2% target.
Core CPI inflation is heading for 2½% by the end of this year, and perhaps sooner. The trend in the monthly numbers is now a solid 0.2%, and that's before the weaker dollar arrests the decline in goods prices. Goods account for only a quarter of the core CPI, and right now they are the only part of the index under downward pressure. If--when--that changes, core inflation could rise quite rapidly.
Centrist politicians and markets breathed a sigh of relief yesterday as the results of the Dutch parliamentary elections rolled in. The incumbent conservatives, led by PM Mark Rutte, lost ground but emerged as parliament's biggest party with 33 seats out of the total 150.
Yesterday's labour market data significantly bolster the consensus view on the MPC that interest rates do not need to rise this year to counter the imminent burst of inflation. Granted, the headline, three-month average, unemployment rate fell to 4.7% in January--its lowest rate since August 1975--from 4.8% in December, defying the consensus forecast for no-change.
The median of FOMC members' estimates of longer run nominal r-star--the rate which would maintain full employment and 2% inflation--nudged up by a tenth in September to 3.0%, implying real r-star of 1%.
The Japanese GDP report yesterday contained substantial revisions to Q4. We had expected the Q1 contraction, but the revisions recast the health of the recovery, making the domestic demand performance look much less impressive recently, with the economy struggling since the burst of growth in the first half last year.
The minutes of March's MPC meeting were more newsworthy than we--and the markets--expected. Kristin Forbes broke ranks and voted to raise Bank Rate to 0.50%, from 0.25%.
Equity prices for U.K. retailers have performed woefully since the E.U. referendum. The FTSE All-Share Index for general retailers has underperformed the overall All-Share Index by nearly 30% since the Brexit vote.
The most eye-catching aspect of December's consumer prices report was the pick-up in core inflation to 1.9%, from 1.8% in November, above the no-change consensus.
This week's labour market, inflation and retail sales data--the last before the MPC meets on May 10--will have a major bearing on the Committee's decision.
Growth in new EZ car sales slipped last month, following a strong start to the year. New registrations rose 4.4% year-over-year in February, slowing from a 8.7% rise in January.
Governor Kuroda dropped further hints in speeches earlier this week that interest rates will be going up. He discussed methods of exit, in loose terms.
Colombia's economy defied rising political uncertainty at the start of the year. Retail sales growth jumped to plus 6.2% year-over-year in January, up from -3.8% in December and -1.8% in Q4.
The average month-to-month increase in the core CPI in the past three months is a solid 0.20, much firmer than the 0.05% average over the previous five months, stretching back to the first of the run of downside surprises, in March.
Chinese April retail sales growth slowed sharply in value terms, to 9.4% year-over-year, from 10.1% in March.
Prime Minister Shinzo Abe last Tuesday finally declared a state of emergency for a month in parts of Japan, after weeks of dithering.
The consensus view that today's retail sales data will show volumes increased by 0.2% month-to-month in October is too sanguine.
The latest official data continue to understate the collapse in labour demand since Covid-19.
Japanese GDP growth in the third quarter corrected the imbalances of the second. Domestic demand took a breather after unsustainable growth in Q2, while net exports rebounded.
The MPC almost certainly will keep interest rates on hold today and likely won't give a strong steer on the outlook for policy in the minutes of its meeting, which are released at mid-day. On the whole, surveys of economic activity have been weak, indicating that GDP growth has slowed sharply in the second quarter.
The 21K rise in the headline, three-month average, unemployment rate between November and February confirmed last month that the U.K.'s period of fantastically strong growth in employment has ended. Timelier indicators, however, suggest unemployment is stabilising, not on the cusp of a major increase.
Consensus expectations for August's labour market data, released today, look well grounded.
Chief U.K. Economist Samuel Tombs on the latest U.K. Labour Market Data
Bank Governor Mark Carney reiterated in a speech yesterday that he wants to see sustained momentum in GDP growth, domestic cost pressures firm and core inflation rise further towards 2%, before raising interest rates. We doubt he will have long to wait on the last two points, given the tightness of the labour market.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the outlook for U.S. inflation and labor market with Bloomberg's Joe Weisenthal and Julia Chatterley on "What'd You Miss?"
Markets were right to conclude that September's slightly weaker average weekly wage figures will have little impact on the MPC's decision on when to raise official interest rates. Fundamentally, wage pressures are building and likely will contribute to pushing CPI inflation back to its 2% target towards the end of 2016.
It's tempting to conclude that the pick-up in year over-year growth in average weekly wages, excluding bonuses, to a three-year high of 3.1% in July, from 2.8% in June, signals that employees' bargaining power has strengthened and that a sustained wage recovery now is under way.
Pantheon Macroeconomics is pleased to make available to you our Outlooks for the second half of 2017 for the US, Eurozone, UK, Asia, and Latin America. These reports present our key views, giving you a concise summary of our economic and policy expectations. If you are interested in seeing publications which you don't already receive, please request a complimentary trial
Markets will be hyper-sensitive to U.K. data releases following the MPC's warning that it is on the verge of raising interest rates.
We're expecting a 175K increase in December payrolls today. Our forecast has been nudged down from 190K in the wake of the ADP employment report, which was slightly weaker than we expected.
The Italian economy slowed at the end 2017, and it continues to underperform other major EZ economies. Real GDP rose 0.2% quarter-on-quarter in Q4, a bit slower than the 0.3% gain in Q3, pushing full-year growth up to a modest 1.0%. This compares poorly, though, with growth of 1.6% in the euro area as a whole.
It doesn'tt matter if third quarter GDP growth is revised up a couple of tenths in today's third estimate of the data, in line with the consensus forecast.
The headline employment cost index has been remarkably dull recently, with three straight 0.6% quarterly increases. The consensus forecast for today's report, for the three months to December, is for the same again.
Chinese CPI inflation trends point to diminishing wage growth, as the services sector begins to struggle with the influx of labour displaced by the industrial productivity drive.
The MPC's meeting on Thursday looks set to be a perfunctory affair. Signs that the economy has lost momentum this year, alongside downward surprises from CPI inflation in January and wage growth in December, mean the Committee won't give the idea of hiking rates a moment's thought.
Fed Chair Yellen said nothing very new in the core of her Monetary Policy Testimony yesterday, repeating her view that rates likely will have to rise this year but policy will remain accommodative, and that the labor market is less tight than the headline unemployment rate suggests. The upturn in wage growth remains "tentative", in her view, making the next two payroll reports before the September FOMC meeting key to whether the Fed moves then.
The MPC talks up raising bank rate soon...but weak wage growth likely will mean it hesitates
The economic momentum evident late last year carried into 2015, the Labor Department said Friday, with American employers adding 257,000 jobs in January as wage growth rebounded and more people joined the workforce
Sterling's fall is hurting more than it's helping...Slow GDP and wage growth will keep the MPC inactive
The March employment report didn't tell us what we really want to know. The underlying trend in wage growth remains obscured by the calendar quirk which depresses reported hourly earnings when the 15th of the month--pay day for people paid semi-monthly -- falls after the payroll survey week.
In January, average hourly wages grew 0.5% over the prior month, the biggest month-on-month increase since November 2008......Ian Shepherdson at Pantheon Macro said the outlook for wage growth is still strong
Growth, inflation to challenge the Fed in 2018...faster wage growth will push them too
Friday's sole economic report showed that wage growth in France remained robust mid-way through the year. The non-seasonally adjusted private wage index, ex-agriculture and public sector workers, published by the Labour Ministry, rose by 0.3% quarter-on-quarter in Q3.
In one line: Wage growth is too strong for the MPC to mull renewed stimulus.
We have argued consistently for some time that the next year will bring a clear acceleration in U.S. wage growth, because the unemployment rate has fallen below the Nairu and a host of business survey indicators point to clear upward wage pressures. Nominal wage growth has been constrained, in our view, by the unexpected decline in core inflation from 2012 through early 2015, which boosted real wage growth and, hence, eased the pressure from employees for bigger nominal raises.
In one line: The recent slowdown in wage growth likely won't last.
In one line: Still broadly flat, as Brexit risk offsets support from solid wage growth.
In one line: Solid start to Q4 for net trade; wage growth dipped, slightly, in Q4.
In one line: Resilient wage growth bolsters the case for rate hikes.
Japan's wage growth fell to -0.2% year-over-year in November, after a flat October, ending hopes of a further uptrend.
The improvement in the Markit/CIPS services PMI in October was pretty limp, supporting our view here that the recovery is shifting into a lower gear. What's more, the poor productivity performance implied by the latest PMIs indicates that wage growth will fuel inflation soon. As a result, the Monetary Policy Committee--MPC--won't be able to wait long next year before raising interest rates. Indeed, we expect the minutes of this month's meeting, released today, to show that one more member of the nine-person MPC has joined Ian McCafferty in voting to hike rates.
In one line: Wage growth is firming in the Eurozone, but the ECB is focused elsewhere.
Japan's wage growth is not strong enough to support households through the tax hike
Japan's wage growth rebounded because August is not a bonus month. Japan's current account maintains stability as trade balance cross currents persist. China's services PMI report contains some positive details but we aren't convinced. The rebuilding of Korea's current account surplus will soon lose momentum.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses the impact of improving wage growth and inflation on the Federal Reserve ahead of today's February jobs report. He speaks on "Bloomberg Surveillance."
Chief U.K. Economist Samuel Tombs on U.K. Inflation
Chief U.K. Economist Samuel Tombs on U.K. employment
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