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1481 matches for "employment":
Full employment is a deceptively simple-sounding concept. If everyone who wants a job has one, the economy is at full employment, right? Anything less tends to raise eyebrows among non-economists, whether the people who want a job are formally inside the labor force, or have dropped out but would come back if they thought they could find work.
A couple of Fed speakers this week have described the economy as being at "full employment". Looking at the headline unemployment rate, it's easy to see why they would reach that conclusion.
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.
The closer we look at the Fed's new forecasts, the stranger they seem. The FOMC cut its GDP estimate for this year and now expects the economy to grow by 1.9%--the mid-point of its forecast range--in the year to the fourth quarter. Growth is then expected to pick up to 2.6% next year, before slowing a bit to 2.3% in 2017. Unemployment, however, is expected to fall much less quickly than in the recent past.
Yesterday's surprising decline in the Eurozone unemployment rate adds further evidence to the story of a slowly healing economy. The rate of joblessness fell to 10.9% in July from 11.1% in June, the lowest since the beginning of 2012, mainly driven by a 0.5 percentage point fall in Italy, and improvement in Spain, where unemployment fell 0.2 pp to 22.2%.
Yesterday's labour market figures revealed that employment growth has picked up this year, despite the shadow cast over the medium-term economic outlook by Brexit. The 122K, or 0.4%, quarter-on-quarter rise in employment in Q1 was the biggest since Q2 2016.
This is the final Monitor before we head out for our spring break, so we have added a page in order to make room to preview the employment report due next Friday, April 4. We expect a solid but unspectacular 175K increase in payrolls, slowing from February's unsustainable 242K, but still robust.
We argued yesterday that the August payroll number is unlikely to be a blockbuster, thanks to a combination of problems with the birth/death model and the strong tendency for this month's jobs number to be initially under-reported and then revised substantially higher. But these arguments don't apply to the unemployment rate, which is derived from the separate household survey.
In one line: Unemployment nudges higher in Q3.
The gratifyingly strong 222K headline June payroll gain, if repeated through the second half of the year, will put unemployment below 4% by December.
Workers in the euro area remain scarred by the zone's repeated crises, but the strengthening cyclical recovery is slowly starting to spread to the labour market. The unemployment rate fell to a three-year low of 10.9% in July, and employment has edged higher after hitting a low in the middle of 2013. Germany's outperformance is a key story, with employment increasing uninterruptedly since 2009, and the unemployment rate declining to an all-time low of 6.4%. Among the other major economies, the unemployment rate in Spain and Italy remains higher than in France. But employment in Spain has outperformed in the cyclical recovery since 2013.
We're bracing for another ugly set of labour market data on Thursday, showing that both employment and earnings fell sharply in May and June.
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.
The Eurozone labour market is slowly healing following two severe recessions since 2008. Unemployment fell to a two-year low of 10.3% in January, and yesterday's quarterly labour force survey was upbeat. Fourth quarter employment rose 1.2% year-over-year, up from 1.1% in Q3, pushing total EZ employment to a new post-crisis high of 152 million.
The most important number, potentially, in today's wave of economic reports is the Employment Costs Index for second quarter.
Korea's unemployment rate fell for a second straight month in October, inching down to 3.9%, from 4.0% in September.
One of the most eye-catching features of the U.K.'s economic recovery has been the strength of job creation. It took seven-to-eight years for employment to return to its pre-recession peaks after the recessions of the early 1980s and 1990s. By contrast, employment rescaled its 2008 peak in mid-2012, and it has risen by a further 6% since.
The French labour market improved much more than we expected in Q4. The headline unemployment rate plunged to 8.9%, from a downwardly-revised 9.6% in Q3.
Korea's unemployment rate rose faster than expected in May, jumping to 4.5%, from 3.8% in April. We've been arguing for some time that the delayed impact of the economic growth slowdown from late- 2017 to early-2019 would eventually push the jobless rate to the mid-4% level this year; the sudden stop caused by Covid-19 merely sped up this process.
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.
Korea's unemployment rate was unchanged in April, at 3.8%, beating even our below-consensus forecast for only a minor uptick, to 3.9%.
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 stand-out development in yesterday's labour market report was the drop in the he adline, three-month average, unemployment rate to just 4.0% in June--its lowest rate since February 1975--from 4.2% in May.
In one line: A collapsing participation rate prevents a sharper deterioration in unemployment.
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.
We're fully expecting to see a hit to September payrolls from Hurricane Florence, which struck during the employment survey week.
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.
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.
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.
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.
Data yesterday showed that the downward trend in Eurozone unemployment continued towards the end of last year. The unemployment rate fell to 10.4% in December from 10.5% in November, extending an almost uninterrupted decline which began in the first quarter of 2013.
We were worried about downside risk to yesterday's ADP employment measure, but the 67K increase in November private payrolls was at the very bottom of our expected range.
Youth unemployment remains a blemish on the Eurozone economy, despite an increasingly resilient cyclical recovery. The unemployment rate for young workers aged 15-to-24 years stood at 18.4% at the end of April, chiefly due to high joblessness in the periphery.
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.
Unemployment in the Eurozone fell to a 22-month low of 10.3% in January, from 10.4% in December, helped by a continued fall in Spain but underpinned by low unemployment in Germany.
The unemployment rate hit its post-1970 low in April 2000, at the peak of the first internet boom, when it nudged down to just 3.8%. The low in the next cycle, first reached in October 2006, was rather higher, at 4.4%.
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.
In one line: German unemployment is now rising; about that fiscal stimulus?
Today's ADP employment report for December ought to show private payrolls continue to rise at a very solid pace
In the wake of the February employment report, the implied probability of a June rate hike, measured by the fed funds future, jumped to 89% from 71%. The market now shows the chance of a funds rate at 75bp by the end of the year at just over 60%. That still looks low to us, but it is a big change and we very much doubt it represents the end of the shift in expectations.
In one line: Unemployment is still rising, but the pace of increase is falling sharply.
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.
In one line: A further rise in sentiment and falling unemployment; not bad.
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.
In one line: Ugly activity data; temporary employment is crashing.
The ADP employment report was on the money in October at the headline level--it undershot the official private payroll number by a trivial 6K--but the BLS's measure was hit by the absence of 46K striking GM workers from the data.
Chief U.S. Economist Ian Shepherdson on U.S. Unemployment
Chief U.K. Economist Samuel Tombs on the latest employment figures
Chief U.S. Economist Ian Shepherdson on today's U.S. Unemployment data
In one line: The EZ economy is slowly rebounding; has the rate of increase in German jobless claims peaked?
In one line: Still all noise, no signal.
In one line: Stabilisation, not recession.
The headline May ISM non-manufacturing index today likely will mirror, at least in part, the increase in the manufacturing survey, reported Friday.
We'd be quite surprised if the headline payroll number today turned out to be far from the consensus, 205K, or our forecast, 225K.
In one line: The EZ labour market remains resilient; the trade surplus is still rising.
It would be astonishing if the May and June payroll numbers looked much like April's strong data, at least in the private sector.
In one line: Robust spending in France through Q3; the German labour market is rolling over.
In one line: Core inflation is flirting with a break into a new, and higher, range.
In the wake of last week's downward revision to fourth quarter GDP growth, productivity will be revised down too. We expect the initial estimate, -1.8%, to be revised down to -2.4%, a startling reversal after robust gains in the second and third quarters.
In one line: Soft CPI data, but temporary distortions are depressing the core.
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.
The first thing to ask after a payroll number far from consensus is whether it is supported by other evidence. We are happy to argue that November's blockbuster report is indeed consistent with a range of other numbers, notwithstanding the unfortunate truth that there are no reliable indicators of payrolls on a month-to-month basis.
We expect a 350K print for October payrolls today. The ADP report was stronger than we expected, suggesting that the post-hurricane rebound will recover more of the ground lost in September than we initially expected.
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.
Yesterday's data provided further evidence of the damage wrought on the EZ at the end of Q1.
Manufacturing in the Eurozone had a slow start to the third quarter. Industrial production rose only 0.1% month-to-month in July, though the year-over-year rate was pushed up to 3.2% from a revised 2.8% in June.
The Labour Force Survey continues to understate massively the damage caused by Covid-19.
The strength in payrolls in recent months is real. The three-month moving average increase in private payrolls now stands at 280K, despite adverse seasonal adjustments totalling 91K in the fourth quarter, compared to the same period last year.
May's labour market figures, released on Wednesday, likely will have something for both the doves and the hawks on the MPC , who have been wrangling over whether to reverse last year's rate cut.
It has become fashionable to argue that the combination of favorable yield differentials and abundant global liquidity, courtesy of the BoJ and the ECB, will keep Treasury yields very low for the foreseeable future; the 10-year could even establish itself below 2%.
The BLS offered no estimate of the impact on payrolls of the snowstorm which hit the Northeast during the March survey week, but it appears to have been substantial. All the leading indicators pointed to a solid 200K-plus reading, more than double the official initial estimate, 98K.
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 rebound in GDP growth in the second quarter seems not to have been enough to prevent year-over-year productivity growth slowing to about zero. The consensus forecast for the first estimate of Q2 productivity growth, due today, is a 1.6% annualized increase, pushing the year-over-year rate down to 0.3% from 0.6% in the first quarter, but we think this is too optimistic.
At first glance, the latest labour market data appear to be contradictory.
Japan's jobless rate was unchanged, at 2.4% in October, as the market took a breather after September's job losses.
Data released over the last few weeks have confirmed that Colombia's economic performance in Q2 was grim, adding weight to our below-consensus GDP forecast.
Economic data in Mexico continue to come in strong.
We remain concerned that huge job losses are imminent, slowing the economic recovery after a mid-summer spurt.
It's not our job to pontificate on the merits, or otherwise, of the tax cut bill from a political perspective.
The limited data available on the state of the labour market, since the government forced businesses to close two weeks ago, paint a disconcerting picture.
The Fed yesterday toned down its warnings on the potential impact on the U.S. of "global economic and financial developments", and upgraded its view on the domestic economy, pointing out that consumption and fixed investment "have been increasing at solid rates in recent months". In September, they were merely growing "moderately". Policymakers are still "monitoring" global and market developments, but the urgency and fear of September has gone. The statement acknowledged the slower payroll gains of recent months--without offering an explanation--but pointed out, as usual, that "underutilization of labor resources has diminished since early this year" and that it will be appropriate to begin raising rates "some further improvement in the labor market".
High interest rates and inflation, coupled with increasing uncertainty, put Mexican consumption under strain last year.
High inflation and interest rates, coupled with increasing uncertainty, both economic and political, put Mexican consumption under strain last year.
We expect the Mexican economy to continue growing close to 2% year-over-year in 2019, driven mainly by consumption, but constrained by weak investment, due to prolonged uncertainty related to trade.
In the wake of yesterday's ADP report, which showed private payrolls up 250K in December, we have revised our forecast for today's official headline number up to 240K from 210K.
In one line: Bad, but it would have been disastrous without Kurzarbeit.
In one line: Solid, but subordinate to politics.
In one line: Ominous, in more ways than one.
In one line: Likely overstating the official number, which will be hit by the GM strike.
In one line: Not enough alone to stop the Fed easing this month.
In one line: Could have been worse; expect better ahead.
In one line: Job growth is set to slow much further.
In one line: Good, but the future is much darker.
In one line: Technical factors mean June official payrolls likely will be stronger than ADP
In one line: Solid; AHE hit be calendar quirks and will rebound.
In one line: A substantial improvement, but it's temporary; a sharp jump is looming.
In one line: A substantial improvement, but not in line with fundamentals.
In one line: Overstates the trend, but also raises the chance of a big official print Friday .
In one line: Solid, but it won't last.
In one line: Nothing to lose sleep over.
In one line: The trend is slowing, but September payrolls likely to be better than August's.
In one line: Terrible, but not really news.
In one line: From huge undershoot to modest overshoot?
In one line: Make the most of the good news.
In one line: Unsustainable, but the trend is still pretty strong.
In one line: Pre-virus, the labor market was strong, if weather-assisted. Now, trouble is coming, fast.
Grim, but this is only the start.
In one line: Rather startling.
In one line: Still terrible, but a bit less terrible each week.
In one word: Astonishing.
In one line: Meh. But the trend is *much* better than surveys suggest.
In one line: Catastrophe, enumerated.
In one line: Spectacular, but it likely overstates the official numbers.
In one line: Likely overstates Friday's official number.
In one line: A second straight gain, but no upward momentum.
In one word: Irrelevant.
In one line: Soft, and no rebound likely near-term.
In one line: Grim, but could have be much more grim.
In one line: The labor market is gradually deteriorating.
In one line: The gradual recovery of the labour market continues.
In one line: Stationary, rather than in outright decline.
In one line: Surprisingly resilient.
In one line: Back to reality.
In one line: Mean-reversion from last month, but claims likely are now rising a bit.
In one line: Germany is not the U.S.
In one line: Solid, but the trend in claims is probably still rising.
In one line: Yikes! Jump in claims is partly a statistical quirk, but the trend is turning for the worse.
In one line: The positive trend is petering out.
In one line: Excellent, but clouds are gathering in some countries.
In one line: Resilient labour market and trade in the face of collapsing GDP, for now.
In one line: EZ GDP growth held up by consumers' and government spending.
In one line: Mixed, but overall further evidence of stabilisation.
All is calm in these data, for now.
In one line: Fantastic, but also ancient news.
In one line: Ignore.
In one line: A poor start to 2020 for Mexico, even before Covid-19.
In one line: Soft industrial data, and external conditions for EM economies are becoming increasingly challenging
In one line: The slow recovery of the Brazilian labor market continues.
In one line: A modest deterioration of the labour market but the real pain is around the corner.
In one line: A solid end to 2019 for Brazil's labour market.
In one line: Improvement continued through February, but the labour market will deteriorate soon.
In one line: The labour market will deteriorate soon.
In one line: The improvement continues.
In one line: A modest upturn is underway, but the overall picture remains bleak.
In one line: Weak, but the full hit will come in April.
In one line: Good industrial production numbers; the labour market is still struggling.
In one line: Early signs of stabilisation, but the rebound remains fragile.
In one line: A marginal improvement in manufacturing, offset by poor mining activity.
In one line: Political uncertainty will weigh on the economy in Q4.
In one line: Struggling, but the second half of the year will be better.
In one line: Grim, due to Covid-19, but a modest recovery likely will emerge in Q3.
In one line: Solid overall; but an investment slowdown looms.
In one line: As bad as during the financial crisis, and this is just the beginning.
We have been puzzled in recent weeks to see clear indications of softening economic activity--falling restaurant diner numbers, fewer small firms open for business and falling employment, and reduced footfall at businesses--while data from the travel business continued to improve.
Today's labour market data look set to show that the headline, three-month average, unemployment rate held steady at just 5% in May, unchanged from April's reading.
The two key planks of the argument that a substantial easing of fiscal policy won't be inflationary are that labor participation will be dragged higher, limiting the decline in the unemployment rate, while productivity growth will rebound, so unit labor costs will remain under control.
The national accounts for the third quarter, released on Wednesday, are likely to show that households are saving a very small proportion of their incomes. Low unemployment, subdued inflation and the healthier condition of households' balance sheets suggests that very low saving is more sustainable than in the past. Nonetheless, the low rate underlines that household spending can't grow at a faster rate than incomes for a sustained period again.
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.
In Brazil, last week's formal payroll employment report for March was decent, with employment increasing by 56K, well above the consensus expectation for a 48K gain.
The PMIs are telling an increasingly upbeat story for the EZ economy in Q4. The composite PMI in the euro area rose to an 11-month high of 54.1 in November, from 53.3 in October. The uptick was driven by strong new business growth across all private sectors, and employment also increased in response to higher work backlogs.
The failure of labor market participation to increase as the economy has gathered pace, pushing unemployment down from its 10.0% peak to just 3.7%in September, is one of the biggest macro mysteries in recent years.
The key market risk in the August employment report is the hourly earnings number. The consensus forecast is for a 0.2% month-to-month increase, in line with the underlying trend, but the balance of risks is firmly to the downside.
We think today's ADP private sector employment report for May will reflect the impact of the Verizon strike, which kept 35K people away from work last month, but we can't be sure. ADP's methodology should in theory only capture the strike if Verizon uses ADP for payroll processing--we don't know--but there's nothing to stop them from manually tweaking the numbers to account for known events. Indeed, it would be absurd to ignore the strike.
It's easy to claim from yesterday's labour market data that the economy is weathering the uncertainty caused by the E.U. referendum. Employment rose by 172K, or 0.5%, between Q1 and Q2, and the claimant count fell by 7K month-to-month in July. These numbers, however, flatter to deceive.
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.
Consumption remains a serious weak spot in Brazil's economic cycle. High inflation, rising interest rates, surging unemployment, plunging confidence, and the government's belt tightening, have trashed Brazilians' purchasing power. Retail sales surprised to the downside in April, falling 0.4% month-to-month, equivalent to a huge 3.5% contraction year-over-year, down from a revised 0.3% gain in March. The underlying trend is awful, as our first chart shows.
Today's labour market report looks set to be a mixed bag, with growth in employment remaining strong, but further signs that momentum in average weekly wages has faded.
The headline employment numbers masked an otherwise sub-par December labour market report.
One of the key positive signs in the Eurozone data since the virus hit has been the evidence that households' liquid money balances have been well supported by job retention schemes, extended unemployment insurance, and aggressive monetary stimulus.
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.
Everyone is familiar by now with the conundrum in the labor market: How come wage gains have barely increased over the past few years even as the unemployment rate has fallen to very low levels, and business surveys scream that employers can't find the people they want? To give just one visual example of the scale of the apparent anomaly, our first chart shows the yawning gap between the headline unemployment rate and the rate of growth of hourly earnings, compared to previous cycles.
The bad news on economic activity keeps coming for Brazil. The formal payroll employment report-- CAGED--for December was very weak, with 120K net jobs eliminated, compared to a 40K net destruction in December 2014, according to our seasonal adjustment. The severe downturn has translated into huge job losses. The economy eliminated 1.5 million jobs last year, compared to 152K gains in 2014. Last year's job destruction was the worst since the data series started in 1992. The payroll losses have been broad-based, but manufacturing has been hit very hard, with 606K jobs eliminated, followed by civil construction and services. Since the end of 2014, the crisis has hit one sector after another.
This week is, potentially, hugely important in determining the Fed's near-term view of the real state of the labor market and its approach to monetary policy over the next few months. The key event is the release of the fourth quarter employment cost index, which could make a material difference to perceptions of the degree of wage pressure.
China's manufacturing PMI was poised for major disappointment... the trade war impact is clear. Don't be fooled by the relative stability of China's non-manufacturing PMI. Japan's March unemployment uptick was early; April was payback. Japan's CPI inflation has peaked. Japan's industrial production ticks up after extreme weakness; don't hold your breath for the recovery. Japan's consumers in poor shape, but maybe it's not that bad. The upswing in Korean industrial production likely to take a breather this month. The BoK holds firm, despite rising calls for a rate cut.
Mexico's economy hit a sticky patch in the first quarter, with confidence slipping, employment growth slowing and the downward trend in unemployment stalling. Indeed, the headline unemployment rate rose to 4.5% in May from 4.3% in April. The seasonally adjusted rate, though, was little changed at 4.4%, with a stable participation rate.
Another month, another bleak Brazilian labor market report. The seasonally adjusted unemployment rate increased marginally to 8.3% in December, up from 8.2% in November, much worse than the 5.1% recorded in December 2014.
Consensus-beating March PMI merely underscores how bad February was... the economy isn't out of the woods. The non-manufacturing bounce was broad-based, but construction led the way. Japan's job openings plunge shows the direction of travel for unemployment. Japan's retail sales suggest Q1 pain to be concentrated in March. Japan inc granted a last month of reprieve before the Covid-19 storm hits. Korean carmakers' sourcing woes largely to blame for February hit.
Punchy output gains from China's manufacturers will soon give way. A mixed bag for China's non-manufacturing sectors at the start of Q3. Don't be fooled by the June slip in Japan's unemployment rate. Expect only a mild recovery in Japanese industrial production, for now. Korean production ended Q2 on a strong note.
Focus on Japan's job-to-applicant ratio, not the unemployment rate
BoJ snubs the doves. Japan's unemployment rate downtick was minimal. The weak external backdrop dominates Japan's pre-tax front-loading industrial activity.
Chinese manufacturing powers through Beijing's partial lockdown. The hot construction sector in China took a small breather in June. Unemployment in Japan is on track to breach the 3% mark for the first time since 2017. No immediate relief for Japanese industry from the withdrawal of the state of emergency. There is light at the end of the tunnel for the downturn in Korean industry.
Japan's unemployment rate merely edged up to 2.5% in March, from February's 2.4% rate. It probably will end the year around one percentage point higher, though, with the pain extending through the second half.
Data to be released this Friday should show that Japan's labour market remains tight, though the unemployment rate likely ticked back up in February, to 2.6%, after the erratic drop to 2.4% in January.
We have argued for some time that the hourly earnings data, which take no account of changes in the mix of employment by industry or occupation, have been depressed over the past year by the relatively rapid growth of low-paid jobs.
The Brazilian labour market is slowly healing following the severe recession of 2015-16. The latest employment data, released last week, showed that the economy added 35K net jobs in August, compared to a 34K loss in August 2016.
The core economic narrative in U.S. markets right now seems to run something like this: The pace of growth slowed in Q1, depressing the rate of payroll growth in the spring. As a result, the headline plunge in the unemployment rate is unlikely to persist and, even if it does, the wage pressures aren't a threat to the inflation outlook.
The speculation is over: 3.283 million people filed a new claim for unemployment benefits last week, nearly double the 1.7M consensus forecast, which looked much too low.
The Fed wants price stability--currently defined as 2% inflation--and maximum sustainable employment.
This week's data will offer the first clear hard evidence of the Covid-19 shock to the EZ economy. Thursday's calendar is the main event, with advance Q1 GDP data, March EZ unemployment numbers, and the April CPI report.
In one line: Regular claims still far too high, and Pandemic Unemployment Assistance claims are rising again.
We think the FOMC's announcement this afternoon will not include the phrase "considerable time", signaling that the first rate cut will come at or before the middle of next year. At the same time, the Fed's new forecasts likely will show the unemployment rate falling into the Fed's estimated Nairu range this year, rather than the spring of 2016, as implied by their September forecasts.
The Mexican labor market has remained relatively healthy in recent months, despite many external and domestic headwinds. Formal employment has increased by 2.1% year-to-date and by 3½% in the year to July, according to the Mexican Social Security Institute.
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.
Today brings a raft of data with the potential to move markets, but we're far from convinced that the two most closely-watched reports--ADP employment and the ISM manufacturing survey--will tell us much about the future.
Yesterday's FOMC statement was a bit more upbeat on growth than we expected, with Janet Yellen's final missive describing everything -- economic growth, employment, household spending, and business investment -- as "solid".
Yesterday was a nearly perfect day for investors in the Eurozone. The Q3 GDP data were robust, unemployment fell, and core inflation dipped slightly, vindicating markets' dovish outlook for the ECB.
Last fall and winter, when the weather was warmer than usual--thanks largely to El Nino--construction employment rocketed. Between October and March, job gains averaged 36K, compared to an average of 20K per month over the previous year. When these strong numbers began to emerge, we expected to see a parallel acceleration in construction spending.
We're expecting a hefty increase in February payrolls today, but even a surprise weak number likely wouldn't prevent a rate hike next week. The trends in all the private sector employment surveys are strong and improving, and jobless claims have dropped to new lows too, though we think that's probably less important than it appears.
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.
...The Fed told investors that it now requires only "some further improvement" in labor market conditions before starting to raise rates-- the "some" is new--but did not set out any specific conditions. With the unemployment rate now just a tenth above the top of the Fed's Nairu range, 5.0-to-5.2%, and very likely to dip into it by the time of the decision on September 17, while payroll growth is trending solidly above 200K per month, rates already would have been raised some time ago in previous cycles.
Yesterday was a good day for headline EZ economic data. GDP growth accelerated, inflation rose and unemployment fell further. Advance Q4 data showed that real GDP in the Eurozone rose 0.5% quarter-on-quarter in Q4, marginally faster than the upwardly revised 0.4% in Q3. Full-year growth in 2016 slowed slightly to 1.7% from 2.0% in 2015.
Japan's unemployment rate returned unexpectedly to its 26-year low of 2.3% in February, falling from 2.5% in January.
None of today's four monthly economic reports will tell us much new about the outlook, and one of them--ADP employment--will tell us more about the past, but that won't stop markets obsessing over it. We have set out the problems with the ADP number in numerous previous Monitors, but, briefly, the key point is that it is generated from regression models which are heavily influenced by the previous month's official payroll numbers and other lagging data like industrial production, personal incomes, retail and trade sales, and even GDP growth. It is not based solely on the employment data taken from companies which use ADP for payroll processing, and it tends to lag the official numbers.
The pitiful 0.7% expansion of the economy in the fourth quarter is not, in our view, a sign of things to come. It is also not, by any means, a definitive verdict on what happened in the fourth quarter; the data are subject to indefinite revision. As they stand, the numbers are impossible to square with the 2.0% annualized increase in payroll employment over the quarter, so our base case has to be that these data will be revised upwards.
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.
Long-time readers will be aware of our disdain fro the ADP employment report, which usually tells us nothing more than that the monthly changes in payrolls tend to mean-revert. That's because the published ADP employment number for each month is generated by regressions which incorporate lagged official payroll data, as well as information from companies which use ADP for payroll processing.
It's very tempting to look at the upturn in the participation rate in recent months and extrapolate it into a sustained upward trend. If the trend were to rise quickly enough, it conceivably could prevent any further fall in the unemployment rate, preventing it falling below the bottom of the Fed's estimated Nairu range.
Today's March ADP employment report likely will catch the leading edge of the wave of job losses triggered by the coronavirus.
In the wake of the soft-looking ADP employment report released on Wednesday, the true consensus for today's official payroll number likely is lower than the 230K reported in the Bloomberg survey. As we argued in the Monitor yesterday, though, we view ADP as a lagging indicator and we don't use it is as a forecasting tool.
Back in April 2012, Janet Yellen--then Fed Vice-Chair--spoke in detail about the labor market and monetary policy. The key point of her labor market analysis was that it was impossible to know for sure how much of the increase in unemployment--at the time, the headline rate was 8.2%--was structural, and how much was cyclical.
If Fed Chair Yellen's objective yesterday was to deliver studied ambiguity in her Testimony--and we believe it was--she succeeded. She offered plenty to both sides of the rate debate. For the hawks, she noted that unemployment is now "...in line with the median of FOMC participants' most recent estimates of its longer-run normal level", and that inflation is still expected to return to the 2% target, "...once oil and import prices stop falling".
Korea's unemployment rate tumbled to 3.7% in February, after the leap to 4.4% in January.
The Korean unemployment rate edged back up to 3.7% in November from October's 3.6%. Young graduates--the usual suspects--accounted for most of the rise.
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.
Today's figures likely will bring the first real signs that the Brexit vote has had an adverse impact on the labour market. The employment balances of the key private-sector surveys weakened sharply in July, and recovered only partially in August. In addition, the three-month average level of job vacancies fell by 7K between April and July.
The Fed's action, statement, and forecasts, and Chair Yellen's press conference, made it very clear the Fed is torn between the dovish signals from the recent core inflation data, and the much more hawkish message coming from the rapid decline in the unemployment rate.
Today's labour market figures likely will show that the Brexit vote has inflicted only minimal damage on job prospects so far. The unemployment rate likely held steady at 4.9% in the three months to September, and the risk of a renewed fall in unemployment appears to be bigger than for a rise.
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 slowdown in households' income growth since the referendum has not pushed up mortgage default rates, so far. Employment grew by just 0.2% quarter-on-quarter in Q3 and 0.1% in Q4, well below the 0.5% average rate seen in the three years before the referendum.
Korea's jobs report for August was a stonker, with unemployment plunging to 3.1%, from 4.0% in July, marking the lowest rate in more than five years.
The US employment data last week reduced further the likelihood of a June Fed rate increase. In turn, this changes the likely timing of the normalization process in some LatAm economies. Our Chief Economist, Ian Shepherdson, expects the Fed to start its normalization process in July or September; the strength of the employment data will prevent any postponement beyond the third quarter.
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.
Many investors probably will be scratching their heads in the wake of next week's labour market report, which will reveal the Covid-19 hit to employment and wages in April, as well as showing how much further the claimant count soared in May.
Payroll growth will slow in the first few months of next year, but wages will accelerate. This might seem counter-intuitive after the ballistic December jobs number coupled with sluggish-looking hourly earnings, but the devil, as always, is in the details. On the face of it, the trend in payroll growth is accelerating at a startling pace, captured in our first chart. But we very much doubt this reflects a real shift in the underlying pace of employment growth, for two reasons. First, payroll growth in recent years has tended to accelerate in the fourth quarter, even when indicators of both labor demand and the pace of layoffs--the two sides of the payroll equation--have been flat, as in Q4.
It's hard to find anything to dislike in the February employment report.
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.
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.
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.
Don't expect the BoK to follow the BoJ's unorthodoxy in the foreseeable future. The upward correction in Korean unemployment has much more room to run.
Today's labour market figures will provide the first "hard data" showing how the economy has fared since the referendum. The headline employment and unemployment numbers will refer to the three months ending June, but data for July will be published on the number of people claiming unemployment benefit and the level of job vacancies.
Your correspondent is on the slopes this week, but the employment report deserves a preview nonetheless.
The ADP measure of private employment hugely overstated the official measure of payrolls in September, in the wake of Hurricane Irma, but then slightly understated the October number.
The odds favor a robust January payroll report today. The key leading indicator--the NIFB hiring intentions index from five months ago--points to a 275K increase, while the coincident NFIB actual employment change index suggests 260K.
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.
We don't directly plug the ADP employment data into our model for the official payroll number. ADP's estimate is derived itself from a model which incorporates lagged official payroll data, because payrolls tend to mean-revert, as well as macroeconomic variables including oil prices, industrial production and jobless claims -- and actual employment data from firms which use ADP's payroll processing services.
In principle, predicting the interest rate policies of an inflation-targeting central bank should be simple. Our first chart shows a standard Taylor Rule rate for the Eurozone based on the ECB's inflation target of 2%, the long-run average unemployment rate and a long run "equilibrium interest rate" of 1.5%. This framework historically has been a decent guide to ECB policy.
Fed Chair Yellen yesterday reinforced the impression that the bar to Fed action in December, in terms of the next couple of employment reports, is now quite low: "If we were to move, say in December, it would be based on an expectation, which I believe is justified, [our italics] that with an improving labor market and transitory factors fading, that inflation will move up to 2%." The economy is now "performing well... Domestic spending has been growing at a solid pace" making a December hike a "live possibility." New York Fed president Bill Dudley, speaking later, said he "fully" agrees with Dr. Yellen's position, but "let's see what the data show."
Chile's unadjusted unemployment rate fell to 7.1% in July-to-September, from 7.3% in June-to-August, but it was up from 6.7% in September last year.
The ADP employment report for September showed private payrolls rose by 135K, trivially better than we expected.
Today's June ADP employment report likely will undershoot the 183K consensus, but we then expect the official payroll number tomorrow to surprise to the upside.
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
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 have argued frequently that the ADP employment report is not a reliable advance payroll indicator--see our Monitor of May 4, for example-- so for now we'll just note that it is generated by a regression model which includes a host of nonpayroll data and the official jobs numbers from the previous month. It is not based solely on reports from employers who use ADP for payroll processing, despite ADP's best efforts to insinuate that it is.
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.
Today's April ADP employment report likely will understate the scale of the net payroll losses which will be reported Friday by the BLS.
The rebound in the ISM non-manufacturing index in February was in line with our forecast, but behind the strong headline, the employment index dropped to an eight-month low.
Let's get straight to the point: It's very unlikely that July's payroll numbers will be as good as June's. Too many direct and indirect indicators of employment and broader economic activity are now moving in the wrong direction.
First, a deep breath: June payrolls, with a margin of error of +/-107K, missed the consensus by 10K. Adding in the -60K revisions and the miss is still statistically insignificant. The story, therefore, is that there is no story. Even relative to our more bullish forecast, the miss was just 37K. Nothing bad happened in June. But we hav e to acknowledge that payroll growth has now undershot the pace implied by the NFIB's hiring intentions number--lagged by five months--in each of the past four months. In June, the survey pointed to a 320K jump in private employment, overshooting the actual print by nearly 100K.
The 6.4-point rebound in the May ISM non-manufacturing employment index, to a very high 57.8, supports our view that summer payroll growth will be strong. On the face of it, the survey is consistent with job gains in excess of 300K, as our first chart shows, but that's very unlikely to happen.
All the fundamentals point to a very strong payroll number for May. The NFIB hiring in tentions index, the best single leading indicator of payrolls five months ahead, signalled back in December that May employment would rise by about 300K. The NFIB actual net hiring number, released yesterday, is a bit less bullish, implying 250K, but the extraordinarily low level of jobless claims, shown in our first chart, points to 300K. Finally, the ISM non-manufacturing employment index suggests we should be looking for payrolls to rise by about 260K. Our estimate is 280K.
The November ADP employment report today likely will show private payrolls rose by about 180K. We have no reason to think that the trend in payroll growth has changed much in recent months, though the official data do appear to be biased to the upside in the fourth quarter, probably as a result of seasonal adjustment problems triggered by the crash of 2008. We can't detect any clear seasonal fourth quarter bias in the ADP numbers.
Where to start with the January employment report, where all the key numbers were off-kilter in one way or another?
It's a myth that the 10-ye ar decline in the unemployment rate has not driven up the pace of wage growth.
We are expecting a hefty increase in the August ADP employment number today--our forecast is 225K, above the 175K consensus --but we do not anticipate a similar official payroll number on Friday. Remember, the ADP number is based on a model which incorporates lagged official employment data, the Philly Fed's ADS Business Conditions Index, and data from firms which use ADP for payroll processing.
Yesterday's PMI data confirmed that the EZ manufacturing sector is in rude health. The manufacturing PMI in the euro area rose to a cyclical high of 57.4 in June, from 57.0 in May, slightly above the first estimate. New orders and output growth are robust, pushing work backlogs higher and helping to sustain employment growth.
The least-bad way to forecast the ADP employment number is to look at the official private payroll number for the previous month. ADP's methodology generates employment numbers from a model incorporating lagged data from the Bureau of Labor Statistics as well as information from companies which use ADP for payroll processing.
We're expecting to see November payrolls up by about 200K this morning, but our forecast takes into account the likelihood that the initial reading will be revised up. In the five years through 2014, the first estimate of November payrolls was revised up by an average of 73K by the time o f the third estimate. Our forecast for today, therefore, is consistent with our view that the underlying trend in payrolls is 250K-plus. That's the message of the very low level of jobless claims, and the strength of all surveys of hiring, with the exception of the depressed ISM manufacturing employment index. Manufacturing accounts for only 9% of payrolls, though, so this just doesn't matter.
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.
We can think of at least three reasons for the apparent softness of ADP's March private sector employment reading.
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.
The May employment report was somewhat overshadowed by the furor over the president's tweet, at 7.15AM, hinting--more than hinting--that the numbers would be good.
Mean-reversion is a wonderful thing; it's what gives the ADP employment report the wholly unjustified appearance of being a useful leading indicator of payroll growth. Over time, the best single forecast of payroll gains or losses in any particular month is whatever happened last month.
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.
Our composite index of employment indicators, based on survey data and the official JOLTS report, looks ahead about three months.
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.
The key data originally scheduled for today--ADP employment and the ISM non-manufacturing survey, and the revised Q3 productivity and unit labor costs-- have been pushed to Thursday because the federal government will be closed for the National Day of Mourning for president George H. W. Bush.
We have been asked by a few readers how much confidence we have in our forecast of a 1% rebound in the third quarter employment costs index, well above the 0.6% consensus and the mere 0.2% second quarter gain. The answer, unfortunately, is not much, though we do think that the balance of risks to the consensus is to the upside.
Our caution over China's March industrial production spike was justified. Chinese retail sales growth hits lows. Chinese FAI growth suggests private sector policy loosening isn't working. Japan's M2 growth upturn is a welcome break, but needs to be sustained. Korean unemployment jumps in April, showing the limits of the government's hiring spree.
The ADP employment report suggests that the hit to payrolls from Hurricane Florence was smaller than we feared, so we're revising up our forecast for the official number tomorrow to 150K, from 100K.
Most of the leading indicators of payroll growth have rebounded in recent months, with the exception of the Help Wanted Online. Our first chart shows that the NFIB's measure of hiring intentions and the ISM non-manufacturing employment index have returned to their cycle highs, while the manufacturing employment index has risen substantially from its late 2015 low. The Help Wanted Online remains very weak, but it might have been depressed by increased prices for job postings on Craigslist.
We're expecting a hefty increase in private payrolls in today's August ADP employment report. ADP's number is generated by a model which incorporates macroeconomic statistics and lagged official payroll data, as well as information collected from firms which use ADP's payroll processing services.
Today brings the first glimpse of the post-hurricane employment picture, in the form of the September ADP report.
August plunge in Korean unemployment is unsustainable, but should effectively rule out another BoK cut.
Big gains in the size of the labour force continue to flatter Korea's unemployment rate. Japan's exit from PPI deflation will be followed by only modest inflation.
China still is on track for mild CPI deflation by Q4, PPI deflation in China has bottomed out , Core machine orders in Japan tank in the wake of the state of emergency, Adverse base effects from last year's tax hike will delay Japan's exit from PPI deflation, Surprise spike in Korea's unemployment rate makes sense given the plunge in jobs created
Expect Chinese PPI deflation in the second half. China's CPI inflation faces non-core cross currents; services inflation still slowing. Unemployment in Korea held steady in June; the BoK will be chuffed about improving job growth. PPI deflation in Japan will persist until the end of the year.
Surprise stability in Korea's unemployment rate won't last. Risks to Japan's current account surplus are weighted to the downside
Evidence continues to build that Korea's August unemployment plunge was a fluke. October sales tax hike in Japan opens the door for a quicker exit from PPI deflation.
The winter hit to payrolls is now ancient history. Private employment rose by an average of 273K per month in the second half of last year, so May's 262K has restored normal service, more or less. History strongly suggests the number will be revised up, so we are happy to argue that the data convincingly support our view that the weakness in late winter and early spring was temporary, substantially due to the severe weather.
Job losses in the over-60 group pull Korea's unemployment rate higher in December. Japanese M2 growth holds steady in December. Still no clear signs of a recovery in machine tool orders in Japan.
With the FOMC decision now just seven days away, the forcefulness of recent Fed speakers has led many analysts to argue that only a spectacularly bad payroll report, or an external shock, can prevent a rate hike next week. External shocks are unpredictable, by definition, and we think the chance of a startlingly terrible employment report is low, though substantial sampling error does occasionally throw the numbers off-track.
Core inflation--a long lagging indicator in the euro area-- will rise next year, in response to surging consumers' spending. Our first chart shows that services inflation likely will be a key theme in this story. Even allowing for a structural drag on inflation due to high unemployment outside Germany, cyclical risks to services inflation are tilted firmly to the upside.
Most of the evidence points to a robust December employment report today, though we doubt the headline number will match the heights seen in November, when the initial estimate showed payrolls up 321K. We look for 275K.
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.
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.
We read after the employment report that the drop in the unemployment rate was somehow not significant, because it was due in p art to a reported 41K drop in the size of the labor force, completing a 404K cumulative contraction over the three months to August. In our view, though, analysts need to take a broader approach to the picture painted by the household survey, which is much more volatile and less reliable than the payroll survey over short periods.
Britain's productivity problem has been building under the surface for years, but it is set to be more pertinent now that the economy is close to full employment.
Japan's unemployment rate edged back up to 2.5% in February after the drop in January to 2.4%.
The Chancellor's Summer Statement contained a targeted package of measures aiming to sustain employment and support the ailing hospitality sector. In total, these measures could inject up to £30B into the economy, depending on take-up by households and firms.
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.
The Tankan points to a q/q contraction for capex in Q3, but GDP growth overall will stay strong. Japan's unemployment steady, but details bode ill for Q4. September's full-month data dispel some export worries in Korea; expect a Q3 lift from net trade. Korea's PMI pours cold water on the spectacular jobs report for August. September is as bad as it gets for Korean CPI deflation.
The recent softening in the ISM employment indexes failed to make itself felt in the June payroll numbers, which sailed on serenely even as tariff-induced chaos intensified at the industry and company level.
Today's payroll number is completely irrelevant, because 97% of the 10.2M increase--so far--in initial jobless claims from their pre-coronavirus level came after the employment survey was conducted, between Sunday March 8 and Saturday March 14.
The June employment report pretty much killed the idea that the Fed will cut rates by 50bp on July 31.
We were happy to see the 255K gain in July payrolls, but we remain nervous about the sustainability of such strong numbers. The jump in employment was very large relative to some of the key survey-based indicators of the pace of hiring, even after allowing for the 29K favorable swing in the birth/ death model, compared to a year ago, and the 27K jump in state and local government education jobs, likely due to seasonal adjustment problems
The labour market in the Eurozone continues slowly to improve. The unemployment rate fell to 10.7% in October from 10.8% in September, reaching its lowest level since 2013. The divergence in rates, however, between the major economies remains significant. Unemployment in France, Italy and Spain is still above 10%, but the advance German number continued their record-breaking form in November.
The unemployment rate has now been at 4.1% for six straight months. This does not mean, though, that it's safe to assume it will remain there, or indeed that this level of unemployment can be sustained without eventually triggering a meaningful increase in inflation.
Chief Eurozone Economist Claus Vistesen on Eurozone unemployment
Chief U.S. Economist Ian Shepherdson on the record-breaking number of U.S. Unemployment Claims this week
What do the protests mean for Chile's economy?
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
Chief U.S. Economist Ian Shepherdson on today's Payroll report
Ian Shepherdson on strong non-farm payroll numbers for February
Chief U.K. Economist Samuel Tombs on U.K. Employment
Chief U.K. Economist Samuel Tombs on U.K. Unemployment
Chief U.S. Economist Ian Shepherdson on the latest employment data.
Ian Shepherdson in U.S. Employment for May
Chief U.S. Economist Ian Shepherdson on U.S. Employment in November
The definition of "yesbutism": Noun, meaning the practice of dismissing or seeking to diminish the importance of data on the grounds that the next iteration will tell the opposite story.
Money supply growth in the Eurozone firmed last month. Broad money--M3--rose 5.0% year-overyear in August, after a tepid 4.5% rise in July.
The risk posed by consumer borrowing was once again the focus of the Financial Policy Committee's discussion last week.
The latest E.C. survey shows the gap between firms' and households' confidence levels has remained substantial.
Concern over individual freedoms was the spark for Hong Kong's recent demonstrations and troubles, and protesters' demands continue to be political in nature.
In recent Monitors--see here and here--we have made a case for decent growth in the EZ's largest economies in the second half of the year, though we remain confident that full-year growth will be a good deal slower, about 2.0%, than the 2.5% in 2017.
Mexican policymakers voted to leave the main rate on hold at 8.25% yesterday, as inflation remains high--though falling--and the economy is stuttering.
The terrible scenes from Texas will play out in the economic data over the next few weeks.
Our forecast that CPI inflation will shoot up to about 3% in the second half of 2017, from 0.6% last month, assumes that pass-through from the exchange rate to consumer goods prices will be as swift and complete as in the past. Our first chart shows that this relationship has held firm recently, with core goods prices falling at the rate implied by sterling's appreciation in 2014 and 2015.
Inflation in Mexico remains relatively sticky, limiting Banxico's capacity to adopt a more dovish approach, despite the subpar economic recovery.
Recent polls in Argentina suggest that Alberto Fernández, from the opposition platform Frente de Todos, has comfortably beaten Mauricio Macri, to become Argentina's president.
French consumers remained in great spirits midway through the fourth quarter. The headline INSEE consumer confidence index jumped to a 28-month high in November, from 104 in October, extending its v-shaped recovery from last year's plunge on the back of the yellow vest protests.
Our hopes that tax cuts and lower energy inflation would lift French household consumption in Q4 were badly dented by yesterday's consumer sentiment report.
Unconventional indicators of economic activity suggest that the recovery from the Covid-19 shock is gathering momentum.
Yesterday's big news in the Eurozone was the EU Commission's proposed recovery fund.
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.
Business surveys coming out of the Eurozone have been remarkably strong recently. The composite PMI for the Eurozone jumped to 56.7 in March--its highest level since April 2011--from 56.1 in February. Germany's IFO business climate index leaped to a 67-month high in March.
The outlook for French consumers' spending improved this month, at the margin. The headline consumer sentiment index was unchanged at 98 in November, but most forward-looking indicators rose. Consumers' spending in was flat in Q2 and Q3, following a 1.1% jump in the first quarter.
Difficult though it is to tear ourselves away from Britain's political and economic train-wreck, morbid fascination is no substitute for economic analysis. The key point here is that our case for stronger growth in the U.S. over the next year is not much changed by events in Europe.
Survey data in Germany showed few signs of picking up from their depressed level at the start of Q4.
China's industrial profits tanked in January/ February, falling 14.0% year-to-date year-over-year, after a 1.9% drop year-over-year in December.
China's official real GDP growth slowed to 6.0% year-over-year in Q3, from 6.2% in Q2 and 6.4% in Q1. Consecutive 0.2 percentage points declines are significant in China.
The Chancellor indicated yesterday that the current fiscal plans--which set out a 1% of GDP reduction in the structural budget deficit this year--will remain in place until a new Prime Minister is chosen by September 2. So for now, the burden of leaning against the imminent downturn is on the MPC's shoulders.
Recent export performance has been poor, but the export orders index in the ISM manufacturing survey-- the most reliable short-term leading indicator--strongly suggests that it will be terrible in the fourth quarter.
The FOMC flagged recent market developments as a source of risk to the U.S. economy yesterday, unsurprisingly, but didn't go overboard: "The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook."
Yesterday's sole economic report in the EZ showed that consumer sentiment in Germany improved mid-way through the fourth quarter.
The BRL remains under severe stress, despite renewed signals of a sustained economic recovery and strengthening expectations that the end of the monetary easing cycle is near.
Political uncertainty is starting to dampen housing market activity again.
We think today's consumer sentiment survey in France will show that the headline index was unchanged at 94 in May. The survey's forward looking components have weakened modestly in recent months, due to declines in households' outlook for their financial situation and standard of living in the coming 12 months.
President Temer seems to be advancing on his reform agenda.
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.
Japan's flash Nikkei manufacturing PMI report for November was abysmal, putting the chances of a recovery this quarter into serious doubt.
Improving fundamentals have supported private spending in Mexico during the current cycle.
We have argued for some time that the revival in nonoil capex represents clear upside risk for GDP growth next year, but it's now time to make this our base case.
Developments over the last month have heightened our concern about the near-term outlook for households' spending.
Data today will likely show that consumer sentiment in the Eurozone remains firm. In Germany, we expect a slight dip in the advance headline GFK confidence index to 9.8 in June, from an all-time high of 10.1 in May.
Don't be alarmed by the second straight jump in consumers' inflation expectations, captured by the Conference Board's May survey, reported yesterday.
Data from trade body U.K. Finance show that mortgage lending has remained unyielding in the face of heightened economic and political uncertainty.
Yesterday's consumer sentiment data provided further evidence of a strengthening French economy, amid signs of cracks in the otherwise solid German economy.
Mexico's private spending stumbled at the start of the second quarter.
Economic activity in Mexico during the past few months has been relatively resilient, as external and domestic threats appear to have diminished.
The coronavirus pandemic looks set to spread rapidly throughout LatAm.
This week's economic data for the Mexican economy have been encouraging, especially for Banxico, which left its main interest rate unchanged yesterday at 3.0%. Inflation remained on target for the second consecutive month in the first half of February, and the closely-watched IGAE economic activity index--a monthly proxy for GDP--continued to grow at a relatively solid pace, despite the big hit from lower oil prices.
Japan's all-industry activity index dropped by 3.8% month-on-month in March, worse than the 0.7% slip in February.
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.
Whichever way you choose to slice the numbers, consumers' spending is growing much more slowly than is implied by an array of confidence surveys.
Money supply data are sending an increasingly contrarian, and bullish, signal for the euro area economy.
French business sentiment cooled marginally at the end of Q3. The headline manufacturing confidence index dipped to 110 in September, from 111 in August, though the overall business sentiment gauge was unchanged at 110.
Core durable goods orders in recent months have been much less terrible than implied by both the ISM and Markit manufacturing surveys.
All the evidence indicates that growth in Mexican consumers' spending is slowing, despite the better- than-expected November retail sales numbers, released yesterday.
Yesterday's IFO data reversed the good vibes sent by last week's upbeat German PMIs.
As the situation with the coronavirus develops, and we gain more information on the authorities' response, it's becoming clear that the damage to Q1 GDP is going to be nasty.
Mexico's central bank, Banxico, will hold its first monetary policy meeting of this year tomorrow. It will break with tradition, holding the meeting on Thursday at 1:00 p.m, local time, instead of the previous 9:00 a.m slot.
Mexico's inflation has started to edge higher due mainly to an unfavorable base effect and pressures on food prices. The bi-weekly headline CPI for the first half of February edged up to 2.9% year-over-year and up from 2.7% in January and the record low of 2.3% in December.
Industrial profits growth is closely watched by the Chinese authorities, even more so now that deleveraging is a prime policy aim.
Data released yesterday in Mexico highlighted the volatility in international trade resulting from the pandemic.
House Democrats and Senate Republicans are so far apart on both the structure and the size of the next Coronavirus relief package that it's hard to see a bill passing Congress in less than a couple weeks or so, and it could easily take longer.
The end of the government shutdown--for three weeks, at least-- means that the data backlog will start to clear this week.
China's government overshot its deficit target last year, and probably will overshoot it by at least as much this year
Yesterday's January EZ money supply data offered support for investors betting on a further dovish shift by the ECB at next month's meeting.
We were happy to see upside surprises from both sides of the domestic economy yesterday, but we doubt that the August readings from both the Conference Board's consumer confidence survey and the Richmond Fed business survey can hold.
The preliminary estimate of Q1 GDP looks set to show that the economy started 2017 on a weak footing. We share the consensus view that quarter-on-quarter GDP growth slowed to 0.4%, from 0.7% in Q4.
In contrast to surveys of manufacturing activity and sentiment, the Conference Board's measure of consumer confidence rose sharply in August, hitting an 11-month high. People were more upbeat about both the current state of the economy and the outlook, with the improving job market key to their optimism. The proportion of respondent believing that jobs are "plentiful" rose to 26%, the highest level in nine years.
August's mortgage lending data from the trade body U.K. Finance provided more evidence that the pick-up in housing market activity in Q2 simply reflected a shift from Q1 due to the disruptive weather, rather than the emergence of a sustainable upward trend.
Headline M3 money supply growth in the Eurozone was steady as a rock at around 5% year-over-year between 2014 and the end of 2017.
The Covid-19 outbreak has rattled equity markets, but has not had a major bearing on DM currencies, yet.
Retail sales in Mexico plunged at the end of Q4, but we think households' spending will continue to contribute to GDP growth in the first quarter.
Retail sales in Mexico fell in Q4, but we think households' spending will continue to contribute to GDP growth in the first quarter, at the margin.
The BoK surprised markets and commentators by keeping rates unchanged at 1.25% yesterday, rather than cutting to 1.0%.
Money supply growth in the Eurozone rebounded slightly last month, reversing some of the weakness at the start of the year.
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.
Inflation pressures in the Eurozone are building rapidly, setting up an "interesting" ECB meeting next week. Yesterday's advance CPI report showed that inflation edged up further in February to 2.0%, from 1.8% in January. The headline rate is now in line with the ECB's target, and up sharply from the average of 0.2% last year.
Yesterday's sole economic report in the Eurozone confirmed that the economy slowed further at the end of 2018.
Japanese services price inflation edged down in May as the twin upside drivers of commodity price inflation and yen weakness began to lose steam. We expect wage costs to begin edging up in the second half but this will provide only a partial counterbalance.
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.
Yesterday's final manufacturing PMIs confirmed that the headline index in the euro area rebounded further last month.
The Redbook chainstore sales survey today is likely to give the superficial impression that the peak holiday shopping season got off to a robust start last week.
Industrial companies in the Eurozone are still struggling with low growth, but the outlook is stabilising following the near-recession late last year. The Eurozone manufacturing PMI was unchanged at 51.0 in February, trivially lower than the initial estimate of 51.1.
Investors probably are right to expect this week's MPC meeting to lack drama.
The broadly flat trend in the near-real-time indicators of economic activity shows few signs of ending.
We'd be very surprised to see a material weakening in today's March ISM manufacturing survey. The regional reports released in recent weeks point to another reading in the high 50s, with a further advance from February's 57.7 a real possibility.
Economic data released on Friday underscored our view that bolder rate cuts in Brazil are looming. The BCB's latest BCB's inflation report, released on Thursday, showed that policymakers now see conditions in place to increase the pace of easing "moderately" .
French finance minister Bruno Le Maire had bad news for his compatriots yesterday.
The economic data in the Eurozone were mixed while we were away.
The next nine weeks bring three jobs reports, which will determine whether the Fed hikes again in September, as we expect, and will also help shape market expectations for December and beyond.
We expect China's quarterly real GDP growth in the second quarter to edge down from Q1, but only because Q1 growth was unsustainable. The official data shows real GDP growth at 1.3% quarter-onquarter in Q1.
Last week's national accounts confirmed that the economy lost momentum abruptly in Q1, with net trade and investment failing to offset weaker growth in households' spending.
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.
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 downside surprise in April payrolls reflected weakness in just three components--retail, construction, and government--compared to their prior trends. Of these, we think only the construction numbers are likely to remain soft in May. Had it not been for the Verizon strike, then, we would have expected payrolls to rise by just over 200K in May, but the 35K strike hit means our forecast is 170K.
Korean trade ended the year strongly, salvaging what was shaping up as a dull fourth quarter for the economy.
Our payroll model relies heavily on lagged indicators of the pace of hiring, most of which have improved in recent months after a sustained, though modest, softening which began last spring. That's why we expected an above-consensus reading from ADP on Wednesday and from the BLS today.
It has been a nasty start to the year for LatAm as markets have been hit by renewed volatility in China, triggered by the coronavirus.
The data in LatAm were all over the map while we were out.
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 first economic report of 2020 confirmed the main story in the euro area last year; namely a recession in manufacturing.
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.
The number of coronavirus cases continues to increase, but we're expecting to see signs that the number of new cases is peaking within the next two to three weeks.
Yesterday's final manufacturing PMIs confirmed that all remained calm in the EZ industrial sector through February.
Something of a debate appears to be underway in markets over the "correct" way to look at the coronavirus data.
Data released in recent weeks have confirmed that the Andean economies retained a degree of momentum in Q4, with inflation well under con trol.
Data released last week confirm that Brazil's recovery has continued over the second half of the year, supported by steady household consumption and rebounding capex.
The agreement between Presidents Trump and Xi at the G20 is a deferment of disaster rather than a fundamental rebuilding of the trading relationship between the U.S. and China.
Chile's stronger-than-expected industrial production report for December, and less-ugly-than- feared retail sales numbers, confirmed that the hit from the Q4 social unrest on economic activity is disappearing.
Last week we made a big call and further downgraded our China GDP forecasts for Q1; daily data and survey evidence suggested that our initial take, though grim, had not been grim enough.
Market-based measures of uncertainty and volatility remain elevated, but if we look beyond the headlines, two overall assumptions still inform forecasters' analysis of the economy and Covid-19.
Friday's consumer sentiment data in the two main Eurozone economies were mixed.
Friday's money supply data in the euro area show that liquidity support for the economy remained firm mid-way through Q2. Headline M3 rose by 8.9% year-over-year in May, accelerating from a revised 8.2% increase in April, and extending its ascent from around 5% before the Covid-19 shock.
Surveys released yesterday failed to support the MPC's view that the economy has bounced back in Q2.
Yesterday's inflation data in the major euro area economies force us to mark down slightly our prediction for today's headline EZ number.
Investors active in the government bond market will be awaiting today, at 07:30 BST, the publication by the Debt Management Office of its updated Financing Remit for the upcoming three months. The new Remit will show that gilt sales, net of redemptions, will be lower in Q3 than in Q2.
French consumer sentiment dipped slightly in June, but we see no major hit from ongoing labour market disputes. The headline index slipped to 97 in June, from 98 in May; this is a decent reading given the fourpoint jump last month. The headline was constrained by a big fall in consumers' "major purchasing intentions," but this partly was mean-reversion following a surge last month.
Headline money supply growth in the Eurozone accelerated further at the start of Q2.
Yesterday's data don't significantly change our view that first quarter GDP growth will be reported at only about 1%, but the foreign trade and consumer confidence numbers support our contention that the underlying trend in growth is rather stronger than that.
Today's Eurozone data schedule is very hectic, but attention likely will focus on advance Q2 GDP data. France, Austria and Spain will report advance data separately ahead of the EZ aggregate estimate, which is released 11.00 CET. This report will include a confidential number from Germany.
We argued in the Monitor on Friday--see here--that the Fed likely will increase the pace of its Treasury purchases, in order to ensure that the wave of supply needed to finance the next Covid relief bill does not drive up yields.
The extent of shut downs within China is now reaching extreme levels, going far beyond services and threatening demand for commodities, as well as posing a severe risk to the nascent upturn in the tech cycle.
Our ECB-story since Ms. Lagarde took the helm as president has been that the central bank will do as little as possible through 2020, at least in terms of shifting its major policy tools.
The Fed will do nothing to the funds rate or its balance sheet expansion program today.
We expect to learn today that the economy barely grew at all in the fourth quarter. At least, that's what we think the first estimate of growth, due today, will show. This number will then be revised twice over the next couple of months, then again when revisions for the past three years are released in July. Thereafter, the numbers are subject to further annual revisions indefinitely.
Money supply data in the EZ continue to suggest that headline GDP growth will slow soon.
We're expecting ADP today to report a 10M drop in private payrolls in May, but investors should be braced for surprises, in either direction, because ADP's methodology is not clear.
The 2008-to-09 recession was a mild experience for most households which remained employed and benefited from a huge decline in mortgage rates.
Data released this week have confirmed that the Mexican economy is struggling and that the near-term outlook remains extremely challenging.
The Caixin manufacturing PMI picked up to 51.5 in December from 50.8 in November. But the jump looks erratic and we expect it to correct in January.
Today brings an array of economic data, including the jobless claims report, brought forward because July 4 falls on Thursday.
Japan's Q2 Tankan survey wasn't all bad news, but the positives won't last long. The large manufacturers index dropped to 7 in Q2, after the decline to 12 in Q1.
Monetary policy usually is the first line of defence whenever a recession hits.
While we were out, data released in Mexico added to our downbeat view of the economy in the near term, supporting our base case for interest rate cuts in the near future.
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.
Chile's near-term economic outlook is still negative after a sharp resurgence of coronavirus cases.
We want to revisit remarks from Fed Vice-Chair Clarida last week.
We aren't convinced by the idea that consumers' confidence will be depressed as a direct result of the rollover in most of the regular surveys of business sentiment and activity.
Don't write off the outlook for the construction sector purely on the basis of June's grim Markit/CIPS survey.
Gilts continued to rally last week, with 10-year yields dropping to their lowest since October 2016, and the gap between two-year and 10-year yields narrowing to the smallest margin since September 2008.
Yesterday's EZ money supply data confirmed that liquidity conditions in the private sector improved in Q3, despite the dip in the headline.
The forward-looking indices of China's Caixin manufacturing PMI for April attracted more attention than the headline, which was a bit of a non-event; it rose trivially 51.1, from 51.0 in March.
This week's economic reports have provided clear, and uplifting, evidence that EZ consumers came out swinging as lockdowns were lifted.
Our analysis of the Q3 activity and GDP data in yesterday's Monitor strongly suggests that China's authorities will soon ready further stimulus.
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.
Brazil's external accounts were a relatively bright spot again last year.
Core durable goods orders have not weakened as much as implied by the ISM manufacturing survey, as our first chart shows, but it is risky to assume this situation persists.
Back-to-back elevated weekly jobless claims numbers prove nothing, but they have grabbed our attention.
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.
The euro area's record-high external surplus has prompted commentators to suggest that the zone has room to loosen fiscal policy to support growth, or at least relax the deficit reduction rules.
It seems that yesterday's PMI data left investors and analysts more confused than enlightened.
The coronavirus pandemic is wreaking havoc in Brazil.
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.
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.
The slowdown in the EZ economy is well publicised.
The headline payroll number each month is the difference between the flow of gross hirings and the flow of gross firings. The JOLTS report provides both numbers, with a lag, but we can track the firing side of the equation via the jobless claims numbers. Claims are volatile week-to-week, thanks to the impossibility of ironing out every seasonal fluctuation in such short-term data, but the underlying trend is an accurate measure. The claims data are based on an actual count of all the people making claims, not a sample survey like most other data. That means you'll never be blindsided by outrageous revisions, turning the story upside-down.
Inflation pressures in Brazil and Mexico are well under control, with the August mid-month readings falling more than expected, strengthening the case for the BCB and Banxico to cut interest rates in the near term.
Inflation and growth paths remain diverse across LatAm, but in the Andes, the broad picture is one of modest inflationary pressures and gradual economic recovery.
Japan's flash PMI numbers for August were a mixed bag.
Yesterday's August PMI data in the euro area ran counter to the otherwise gloomy signals from the ZEW and Sentix investor sentiment indices.
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.
Yesterday's economic data provided the first glimpse of the crash in EZ sentiment at the start of Q2, ahead of today's more substantial barrage of numbers, including French INSEE data, GfK confidence numbers in Germany and the advance PMIs.
For now, we're happy with our base-case forecast that growth will be nearer 3% than 2% this year, and that most of the rise in core inflation this year will come as a result of unfavorable base effects, rather than a serious increase in the month-to-month trend.
Economic activity in Mexico during the past few months has been resilient, as external and domestic threats, particularly domestic political risks, appear to have diminished.
Our base case remains that the slowdown in quarter-on-quarter GDP growth to about zero in Q2 is just a blip, and that the economy will regain momentum in Q3 and sustain it well into 2020.
Consumer confidence in the Eurozone rose marginally at the start of Q4, though it is still down since the start of the year.
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.
The EZ doom-and-gloom crew has come crawling out of the woodwork again this year. Earlier this month, Nobel laureate Joseph Stiglitz told a German newspaper that Italy and other euro area countries likely will leave the currency union soon.
A shutdown of the federal government, which could happen as early as this weekend, is a political event rather than a macroeconomic shock. But if it happens--if Congress cannot agree on even a shortterm stop-gap spending measure in order to keep the lights on after the 28th--it would demonstrate yet again that the splits in the House mean that the prospects of a substantial near-term loosening of fiscal policy are now very slim.
The Monetary Policy Board of the Bank of Korea is likely to keep its benchmark base rate unchanged, at 1.25%, at its meeting this week.
Yesterday's final Q2 GDP report in Germany confirmed the initial data showing that the economy slowed less than we expected last quarter. Real GDP rose 0.4% quarter-on-quarter in Q2, after a 0.7% jump in Q1. The working-day adjusted year-over-year rate fell marginally to 1.8%, from 1.9% in Q1.
Eurozone PMI data yesterday presented investors with a confusing message. The composite index fell marginally to 52.9 in May, from 53.0 in April, despite separate data that showed that the composite PMIs rose in both Germany and France. Markit said that weakness outside the core was the key driver, but we have to wait for the final data to see the full story.
Mexico's retail sector is finally improving, following a grim second half last year.
Japan's national CPI inflation has peaked, falling to 0.7% in May from 0.9% in April.
If Congress passes another Covid relief bill early next month, as we fully expect, it will have to be financed quickly via increased debt issuance.
Inflation in Mexico surprised to the upside in early Q3, but we still believe it will fall gradually in Q4.
Chainstores are continuing to struggle, even as the reopening of the economy continues.
Both business surveys and unconventional activity indicators suggest that the recovery from the Covid-19 shock has sped up in June, after a shaky start in May.
Yesterday's June PMIs offered more of the same, insofar as the survey's key message goes in the past few months.
The Jibun Bank services PMI for Japan saw a heftier increase in June, to 42.3, from 26.5 in May, signalling a substantial easing of the industry's downturn.
The White House budget proposals, which Roll Call says will be released in limited form on March 14, will include forecasts of sustained real GDP growth in a 3-to-3.5% range, according to an array of recent press reports.
Taken at face value, the GDP data continue to suggest that the Brexit vote has had no adverse consequences for the economy. The official estimate of quarter-on-quarter GDP growth in Q4 was revised up yesterday to 0.7%, from 0.6%. The revision had been flagged earlier this month by stronger industrial production and construction output figures.
Japan's manufacturing PMI rose to 53.3 in April, from 53.1 in March. The index weakened earlier this year, but remained at levels unjustified by the hard data.
The bad news just keeps coming for Brazil's economy. The mid-month CPI, the IPCA-15 index, rose 1.2% month-to-month in March. Soaring energy prices remain the key contributor to the inflation story in Brazil, pushing up the housing component by 2.8% in March, after a 2.2% increase in February.
The recent deceleration in households' real spending means that either business investment or net exports will have to pickup if the economy is to avoid a severe slowdown this year.
Industry estimates for August light vehicle sales suggest that the downshift in sales which began at the turn of the year is over, at least for now.
Japan's January PMIs sent a clear signal that the virus impact is not to be underestimated. The manufacturing PMI fell to 47.6 in February, from 48.8 in January, contrasting sharply with the rising headlines of last week's batch of European PMIs.
Fed Chair Yellen is a committed believer in the orthodox idea that inflation is largely a cost-push phenomenon, and that the most important cost, by far, is labor. So in order to predict what Dr. Yellen might say about the outlook for Fed policy in her Testimony today--beyond the language of the January FOMC statement--we have to take a view on her assessment of the state of the labor market.
Economists' forecasts are changing almost as quickly as market prices these days, and not for the better.
The initial "official estimate" of the French presidential election--released 20.00 CET--suggest that the runoff will be between the centre-right Emmanuel Macron and Front National's Marine Le Pen. This is consistent with opinion polls. The average of five early estimates also suggests that Mr. Macron won the vote with 23.1% of the vote against Mrs. Le Pen's 22.5%.
Yesterday's PMI data in the euro area were a horror show. The composite EZ index cratered to 13.5 in April, from 29.7 in March, dragged down by a collapse in the services index to 11.7, from 26.4 last month.
As we write, the Commons appears to be on the verge of voting for the Withdrawal Agreement Bill--WAB--at its second reading but then voting against the government's "Programme Motion", which sets out a very tight timetable for its passage through parliament, in a bid to meet the October 31 deadline and to minimise parliamentary scrutiny.
The prospect of fiscal stimulus in the euro area-- ostensibly to "help" the ECB reach its inflation target-- remains a hot topic for investors and economists.
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.
The 17-point leap in the Richmond Fed index for October, reported yesterday, was startlingly large.
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.
The recovery in the French economy since the sovereign debt crisis has been lukewarm. Growth in domestic demand, excluding inventories, has averaged 0.4% quarter-on-quarter since 2012. This comp ares with 0.8%-to-1.1% in the two major business cycle upturns in the 1990s and from 2000s before the crisis.
The gap between U.K. and U.S. government bond yields has continued to grow this year and is approaching a record.
New home sales have tended to track the path of mortgage applications over the past year or so, with a lag of a few months. The message for today's January sales numbers, show in our next chart, is that sales likely dipped a bit, to about 525K.
The public finances are in better health than appeared to be the case a few months ago.
German 10-year yields have been trading according to a simple rule of thumb since 2017, namely, anything around 0.6% has been a buy, and 0.2%, or below, has been a sell.
November's labour market data were the last before the MPC's February meeting, when it will conduct its annual assessment of the supply side of the economy.
Most LatAm currencies traded higher against the USD yesterday, adding to the gains achieved after Donald Trump's inauguration last Friday. The MXN, which was the best performer during yesterday's session, was up about 0.8%; it was followed by the CLP, and the BRL. The positive performance of most LatAm currencies, especially the MXN, is related to positioning and technical factors.
The ECB will deliver a carbon copy of its December meeting today, at least in terms of the main headlines.
Further evidence that the general election has transformed business confidence emerged yesterday, in the form of January's CBI Industrial Trends survey.
Yesterday's German IFO survey broadly confirmed the bullish message from the PMIs earlier this week. The headline business climate index rose to 111.0 in February from a revised 109.9 in January, boosted by increases in both the current assessment and the expectations index.
U.K. activity data have consistently surprised to the downside over the last month.
As we reach our deadline--4pm eastern time--media reports indicate that a debt ceiling agreement is close.
We need to start today with a word of warning about today's initial jobless claims, where the risk to the consensus seems mostly to be to the upside.
The rate of growth of new coronavirus infections across Europe slowed yesterday, in some cases quite markedly. We can quibble about the reliability of the data in individual countries, given variations in testing regimes, but the picture is strikingly uniform.
Brazilian inflation is off to a bad start this year, but January's jump is not the start of an uptrend, and we think good news is coming.
Chancellor Sunak looks set to announce more fiscal stimulus next month to reinforce the economic recovery, despite recent record levels of public borrowing.
The big talking point over the weekend was the report from Germany's Robert Koch Institute, RKI, that the Covid-19 reproductive rate jumped to 2.88 at the end of last week, driving the seven-day average up to 2.07.
Recent data in Colombia have confirmed that virus containment measures caused much bigger declines in activity in early Q2 than initially expected.
The ECB conformed to expectations today, at least on a headline level.
Yesterday was a watershed moment for investors.
Brazil's inflation rate remained well under control over the first half of February.
Mexico's final estimate of third quarter GDP, released yesterday, confirmed that the economy is still struggling in the face of domestic and external headwinds.
The official data lag developments in the real economy even at the best of times, but on this occasion the gap has turned into a chasm.
A decade of public deficit reduction was fully reversed in April, as the coronavirus tore through the economy.
The November IFO report suggests that the headline indices are on track for a tepid recovery in Q4 as a whole, but the central message is still one of downside risks to growth
After three straight 1.3% month-to-month increases in core capital goods orders, we are becoming increasingly confident that the upturn in business investment signalled by the NFIB survey is now materializing.
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.
Economic news in the Eurozone, and virtually everywhere else, has been mostly downbeat in the past few months, but French consumers are doing great.
Meetings are a nice way to stress test our base case stories and gauge what questions are important for clients.
The consensus for today's first post-apocalypse jobless claims number, 1,500K, looks much too low.
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.
We're nudging down our estimate of Q2 GDP growth, due today, by 0.3 percentage points to 1.8%, in the wake of yesterday's array of data.
Korean GDP unexpectedly declined in Q4, for the first time since the financial crisis, falling 0.2% quarter-on-quarter after a 1.5% jump in Q3.
Politics in Brazil has been busy in recent days, with local media reporting several items of interest.
The INSEE's manufacturing sentiment data in France are slightly confusing at the moment.
The extent to which the Covid wave in the South and West--plus a few states in other regions--will constrain the recovery is unknowable at this point.
Looking beyond the potential hit from the lockdown in North Rhine-Westphalia, German consumer sentiment is improving steadily.
Mr. Abe yesterday called a snap general election, to be held on October 22nd; more on this in tomorrow's Monitor. For now, note that the election comes at a reasonably good stage of the economic cycle, hot on the heels of very rapid GDP growth in Q2, while the PMIs indicate that the economy remained healthy in Q3.
Yesterday's barrage of French business sentiment data was mixed.
On Friday last week, the Chinese authorities suspended sales of domestic and international tours, in an effort to contain the spread of the coronavirus, which started in Wuhan.
Friday's PMI data were a mixed bag.
The dovish members of Banxico's board garnered further support on Friday for prolonging the current easing monetary cycle over coming meetings.
The preliminary estimate of GDP showed that the economy finished 2016 on a strong note. Output increased by 0.6% quarter-on-quarter, the same rate as in the previous two quarters. The year-over-year growth rate of GDP in 2016 as a whole--2.0%--was low by pre-crisis standards, but it likely puts the U.K. at the top of the G7 growth leaderboard. We cannot tell how well the economy would have performed had the U.K. not voted to leave the EU in June, but clearly the threat of Brexit has not loomed large over the economy.
The uncertainty over the new U.S. administration's economic policies new is clouding the outlook for the Eurozone economy. The combination of loose fiscal policy and tight monetary policy in the U.S. should be positive for the euro area economy, in theory. It points to accelerating U.S. growth--at least in the near term--wider interest rate differentials and a stronger dollar. In a " traditional" global macroeconomic model, this policy mix would lead to a wider U.S. trade deficit, boosting Eurozone exports.
Data released on Friday in Brazil and recent political events helped to open the door further to a final rate cut in August. The IPCA-15--which previews the full CPI-- rose 0.3% month-to-month in July, well below market expectations, 0.5%.
With just five days of July remaining, it seems likely that the trends in most of the key near-real-time indicators will end the month close to the levels seen at the end of June.
Forecasting the health insurance component of the CPI is a mug's game, so you'll look in vain for hard projections in this note.
Yesterday's State Council meeting significantly expanded support to the economy, through a number of channels.
Low-income households will feel the full force of the Covid-19 downturn and will have to slash their expenditure aggressively.
It would be astonishing if the Fed doesn't raise rates today, and Chair Powell is not in the astonishment business; they will hike by 25bp.
Last week's European Council meeting provided little in the way of clarity over the likelihood of a jointly financed response to support economies through the Covid-19 outbreak.
Growth in households' disposable incomes has been supported in recent years by falling debt servicing costs. The proportion of households' incomes absorbed by interest payments fell to a record low of 4.5% in Q4 last year, down from 4.7% a year ago and a peak of 10% in 2008.
The stagnation in business investment since 2016 has been key to the slowdown in the overall economy since the E.U. referendum.
The Covid-19 scare can be split into two stages, the initial outbreak in China, concentrated in Wuhan, and the now-worrying signs that clusters are forming in other parts of the world, primarily in South Korea, the Middle East and Italy.
November's interest rate rise, which took investors by surprise, was triggered in part by the MPC slashing its estimate of trend growth to 1.5%, from an implicit 2.0%.
Friday's final CPI report in the Eurozone confirmed that inflation dipped marginally in January, by 0.1 percentage points, to 1.3%.
The weaker is the economy over the next few months, the more likely it is that Mr. Trump blinks and removes some--perhaps even all--the tariffs on Chinese imports.
If Japan's flash PMIs for March are a sign of things to come, then the government really should get moving on fiscal stimulus.
Even the record-breaking slump in Markit's composite PMI probably understates the hit to economic activity from Covid-19 and the emergency measures to slow its spread.
Inflation in the biggest economies in the region remains close to cyclical lows, allowing central banks to ease even further over the next few months.
Japan's CPI inflation was stable at 0.2% in October, despite the sales tax hike, thanks to a combination of offsetting measures from the government and a deepening of energy deflation.
Yesterday's economic data in Germany confirmed that the economy slowed in Q3, but also added to the evidence that growth will rebound in Q4. The second estimate for Q3 showed that real GDP rose 0.2% quarter-on-quarter, slowing from a 0.4% gain in Q2.
The PMIs in the Eurozone are still warning that the economy is in much worse shape than implied by remarkably stable GDP growth so far this year.
Yesterday's March PMIs confirmed that governments' actions to contain the Covid-19 outbreak dealt a hammer blow to the economy at the end of Q1.
Yesterday's national business confidence data for June provided further evidence that the EZ economy is rebounding.
Data this week look set to emphasise that heat is returning to the housing market, again. The Financial Policy Committee--FPC--still has additional tools it could deploy to cool housing demand. But the root cause of surging house prices remains very cheap debt. Alongside the inflation risk posed by the labour market, the case for the MPC to begin to raise interest rates to prevent a widespread debt problem is becoming compelling.
Chair Yellen's Testimony sought clearly to tell markets that the Fed has upgraded its view on growth, and the state of the labor market. After reading the first few paragraphs, which focussed clearly on the good news, though peppered with the usual caveats, the door was open for the section on policy to signal unambiguously that the Fed is close to its first tightening.
We find it remarkable, after the market volatility induced by the two Brexit deadlines in 2019, that investors do not foresee another bump in the road at the end of this ye ar, when the Brexit transition period is due to end.
Yesterday's labour market data brought further signs that wage growth is recovering from its early 2017 dip.
Broadly speaking, yesterday's headline EZ survey data recounted the same story they've told all year; namely that manufacturing is suffering amid resilience in services.
Some normality has returned in India, more than three weeks from the end of the nationwide lockdown and the start of "Unlock 1.0" on June 1.
We are fundamentally quite bullish on the housing market, given the 100bp drop in mortgage rates over the past six months and the continued strength of the labor market, but today's May new home sales report likely will be unexciting.
The ECB made no changes to policy yesterday, leaving its key refinancing and deposit rates unchanged, at 0.00% and -0.5%, and confirmed that it will restart QE in November at €20B per month.
The gaps in the third quarter GDP data are still quite large, with no numbers yet for September international trade or the public sector, but we're now thinking that growth likely was less than 11⁄2%.
Chair Yellen's speech at Jackson Hole at 10am Eastern time today has the potential to move markets substantially, but that's not our core expectation. It's more likely, we think, that Dr. Yellen will stick to the core FOMC view, which remains that "only gradual increases" in rates will be required, and that rates are "likely to remain, for some time, below levels that are expected to prevail in the longer run".
The decline in China's unofficial PMI, which has dropped to a six-year low, signals increasing troubles ahead for U.S. manufacturers selling into China, and U.S. businesses operating in China. This does not mean, though, that the U.S. ISM will immediately fall as low as the Caixin/Markit China index appears to suggest in the next couple of months. Our first chart shows that in recent years the U.S. manufacturing ISM has tended hugely to outperform China's PMI from late spring to late fall, thanks to flawed seasonals.
Colombia's economy activity is deteriorating rapidly, suggesting that BanRep will have to cut interest rates on Friday. Incoming data make it clear that the economy has moved into a period of deceleration, painting a starkly different picture than a year ago.
News that the Covid-19 virus has spread to more countries frayed investors' nerves further yesterday, with the FTSE 100 eventually residing 5.3% below its Friday close.
The German economy finished last year on the back foot.
In our Webinar--see here--we laid out scenarios for Chinese GDP in Q1 and for this year.
Data released yesterday confirmed that Mexico's economy ended Q4 poorly, confounding the most hawkish Banxico Board members.
Yesterday's German IFO survey suggests that economic momentum in the Eurozone's largest country remained modest at the start of Q2. The headline business climate index fell trivially to 106.6 in April, from 106.7 in March, lower than the consensus expectation of an increase to 107.2.
The Eurozone economy ended the third quarter on a strong note, according to the PMIs.
Yesterday's advance PMI reports in the euro area signal that economic momentum slowed slightly at the start of Q4.
The mortgage market is continuing to hold up surprisingly well, given the calamitous political backdrop.
Today's preliminary estimate of Q3 GDP is the last major economic report to be released before the MPC's meeting on November 2.
The end of China's Party Congress can feel like an endless exercise in reading the tea leaves.
Recent consumer confidence numbers have been strong enough that we don't need to see any further increase. The expectations components of both the Michigan and Conference Board surveys are consistent with real spending growth of 21⁄2-to- 3%, which is about the best we can expect when real income growth, after tax, is trending at about 21⁄2%.
PMI data in the Eurozone rebounded convincingly in October, as the composite index rose to a 10-month high of 53.7, from 52.6 in September. The gain fully reversed the weakness at the end of Q3.
The flat trend in core capital goods orders continued through May, according to yesterday's durable goods orders report. We are not surprised.
We are not worried, at all, by the slowdown in headline payroll growth to 157K in July from an upwardly-revised 248K in June.
Productivity growth reached the dizzy heights of 1.8% year-over-year in the second quarter, following a couple of hefty quarter-on-quarter increases, averaging 2.9%.
Yesterday's minutes of the October 31 COPOM meeting, at which the Central Bank cut the Selic rate unanimously by 50bp at 5.00%, reaffirmed the committee's post-meeting communiqué, which signalled that rates will be cut by the "same magnitude" in December.
Barring some sort of out-of-the-blue shock, we are much more interested in the hourly earnings data today than the headline payroll number. The key question is the extent to which wages rebound after being depressed by a persistent calendar quirk in both February and March.
Any model of payrolls based on the usual indicators--jobless claims, ISM hiring, NFIB hiring, and other sundry surveys--right now points to payroll growth at 250K or better. Indeed, the ISM non-manufacturing report on Wednesday is consistent with payroll growth closer to 400K, and the lagged NFIB hiring intentions number points to 300K. Yet the consensus forecast for today's October report is just 182K. Why so timid?
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.
We're nudging up our forecast for today's August payroll number to 180K, in the wake of the ADP report.
We would be quite surprised if today's official payroll number exceeded the 135K ADP reading; a clear undershoot is much more likely.
Emerging evidence suggests that the economy has passed the period of peak Covid-19 pain.
The small rise in the Markit/CIPS services PMI to 51.3 in February, from 50.1 in January, came as a relief yesterday.
In today's Monitor, we'll let the economy be, and focus instead on what are fast becoming the two defining political issues for the EU and its new Commission, namely migration and climate change.
The pushback from within the President's own party against the proposed tariffs on Mexican imports has been strong; perhaps strong enough either to prevent the tariffs via Congressional action, or by persuading Mr. Trump that the idea is a losing proposition.
On the face of it, the Caixin services PMI was unremarkable in May, unchanged at 52.9.
We think today's February payroll number will be reported at about 140K, undershooting the 175K consensus.
Our base forecast for today's February payroll number is an unspectacular 220K, though if you twist our arms we'd probably say that we'd be less surprised by a big overshoot to this estimate than an undershoot. The single biggest argument against a big print today is simply that February payrolls have initially been under-reported in each of the past five years and then revised higher.
The wide spread in first quarter GDP growth "trackers"--which at this point are more model and assumption than actual data--is indicative of the uncertainty surrounding the international trade and inventory components.
Chile's IMACEC economic activity index rose 3.9% year-over-year in January, up from 2.6% in December, and 2.9% on average in Q4, thanks to strong mining output growth and solid commercial, manufacturing and services activity.
Labor demand appears to have remained strong through August, so we expect to see a robust ADP report today.
The Caixin services PMI fell to 51.5 in August, from 52.8 in July.
Hopes that GDP growth will strengthen following the general election, which has eliminated near- term threats of a no-deal Brexit and a business- hostile Labour government, were bolstered yesterday by the release of December's Markit/ CIPS services survey.
Chile's near-term economic outlook is still negative, but clouds have been gradually dispersing since late Q4, due mostly to better news on the global trade front, China's improving economic prospects, and rising copper prices.
Demand for German manufacturing goods remained subdued at the end of Q4.
The jump in oil prices over the past two trading days eventually will lift retail gasoline prices by about 35 cents per gallon, or 131⁄2%.
Yesterday's economic reports in the Eurozone were solid across the board.
Inflation in the Eurozone fell significantly last month, and probably will ease further in Q1.
The plunge in oil prices me ans that U.S. oil imports are set to drop much further over the next few months, flattering the headline trade deficit. The trend in imports has been downwards since early 2013, as our first chart shows, reflecting the surge in domestic production. That surge is now over, but as falling prices become the dominant factor in the oil import story, the trend will remain downwards.
No fewer than four FOMC members will speak today, ranging from the very dovish to the pretty hawkish.
We raised our forecast for today's January payroll number after the ADP report, to 200K from 160K.
Everything but the weather points to a strong headline payroll number for March. Our composite leading payroll indicator has signalled robust job growth since last fall, and the message for March is very clear.
Yesterday's German industrial production data were poor, but better than we expected. Output fell 0.5% month-to-month in February, pushing annual growth down to 1.3% from a revised 1.8% in January. In addition, net revisions to the month-to-month data were a hefty -1.0%, but this is not enough to change the story of a Q1 rebound in industrial production.
Yesterday's EZ PMI data surprised to the downside. The composite PMI in the euro area dipped to 52.9 in August, from 53.2 in July, below the initial estimate 53.3. The headline was marred by weakness in the German services PMI, which crashed to a 40-month low of 51.7, from 54.4 in July.
...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.
The tepid recovery in German manufacturing continued in at the start of Q4. Factory orders edged higher by 0.3% month-to-month in October, boosted by a 2.9% month-to-month increase in export orders, primarily for capital and intermediate goods in other EZ economies.
Nobody knows the damage China's virus- containment efforts will have on GDP, and we probably never will, for sure, given the opacity of the statistics.
Unless Boeing received a huge aircraft order on November 30, we can now be pretty sure that most of October's 4.6% leap in headline durable goods orders reversed last month. Through November 29, Boeing booked orders for 34 aircraft, compared to 85 in October. Moreover, the bulk of the orders were for relatively low value 737s, whereas the October numbers were boosted by a surge in orders for 787s, whose list price is about three times higher.
The private sector in China has finally joined the party, boosting the durability of the economic recovery.
Brazil's industrial sector is still suffering, but the pain is easing as the economy gradually reopens. That said, full recovery is a long way off, and the pandemic is still far from over, adding downside risks to the recent upbeat picture.
China's PMIs point to softening activity in Q3. The Caixin services PMI fell to 52.8 in July, from 53.9 in June.
Readers have asked us about the availability of flow-of-funds data in the Eurozone similar to the detailed U.S. reports. The ECB's sector accounts come close and cover a lot of ground, but are also released with a lag. We can't cover all sectors in one Monitor, but the investment data for non-financial firms, excluding construction, suggest that investment growth slowed last year.
Friday's final PMI data for March were even more terrifying than the advance numbers. The composite index in the euro area collapsed to 29.7, from 51.6 in February, lower than the consensus 31.4. A downward revision was coming.
On a trade-weighted basis, sterling has dropped by only 1.5% since the start of the month, but it is easy to envisage circumstances in which it would fall significantly further.
The MPC's view that the economy likely will grow at an above-trend rate over the coming quarters was challenged immediately last week by the PMIs.
China's Caixin services PMI picked up further in November to 51.9 from October's 51.2, but the rebound is merely a correction to the overshoot in September, when the headline dropped sharply.
October payrolls were stronger than we expected, rising 128K, despite a 46K hit from the GM strike.
We had hoped that the statistical problems which have plagued the initial estimates of August payrolls in recent years had faded, but Friday's report suggests our judgement was premature.
Labor demand, as measured by an array of business surveys, clearly slowed from the cycle peak, recorded late last year.
The simultaneous decline in both ISM indexes was a key factor driving markets to anticipate last week's Fed easing.
The surge in the broad money supply in March, as the U.K.'s lockdown began, suggests that businesses are in relatively good shape to survive a multi-month period of greatly depressed demand.
Services will bear the brunt of the Covid-19 shock in the euro area, but manufacturing is not far behind.
Yesterday's final manufacturing PMIs for October were grim, but they told investors nothing they don't already know.
The headline 250K October payroll number looked great.
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.
Brazil heads to the polls on Sunday, followed by an expected run-off on October 28.
The Caixin services PMI leapt to an eyebrow- raising 53.8 in November, from 50.8 in October.
Korea's trade data for January provided the first real glimpse of the potential hit to international flows from the disruptions caused by the outbreak of the coronavirus.
Late last year, China said it would scrap residency restrictions for cities with populations less than three million, while the rules for those of three-to-five million will be relaxed.
Chile's Imacec index confirmed that economic growth ended the year on a soft note, due mainly to weakness in the mining sector.
Yesterday's news that the business activity index of the Markit/CIPS services survey fell again in January, to just 50.1--its lowest level since July 2016--has created a downbeat backdrop to the MPC meeting; the minutes and Q1 Inflation Report will be published on Thursday.
It's hard to overstate the geopolitical importance of Friday's assassination of Qassim Soleimani, architect of Iran's external military activity for more than 20 years and perhaps the most powerful man in the country, after the Supreme Leader.
Friday's early EZ CPI data for December were red hot. Headline HICP inflation in Germany jumped to 1.5%, from 1.3% in November, while the headline rate in France increased by 0.4pp, to 1.6%.
Inflation in the Eurozone is on the rise but, as we explained in yesterday's Monitor it is unlikely to prompt the ECB further to reduce the pace of QE in the short run. The central bank has signalled a shift in focus towards core inflation, at a still-low 0.9% well below the 2% target. But the core rate also is a lagging indicator, and we think it will creep higher in 2017.
The latest drop in crude oil prices me ans that sub-zero headline CPI inflation in the spring is now more likely than not. We expect a lurch down from November's 1.3% to 0.7% in December, then 0.3% in January. The rate will remain close to that level for the next few months before hitting zero in May and slipping into negative territory--just--in June and July.
We are not concerned by the very modest tightening in business lending standards reported in the Fed's quarterly survey of senior loan officers, published on Monday.
Real M1 growth is slowing, and financial conditions are beginning to tighten in the Eurozone, but shortleading indicators continue to signal firm momentum in the economy.
The post-election run of upbeat business surveys was extended yesterday, with the release of the final Markit/CIPS services PMI for January.
Productivity likely rose by 1.7% last year, the best performance since 2010.
Mexico's latest hard data suggest things might not be as bad as we feared. Retail sales and manufacturing output were relatively strong at the end of last year, the Q4 preliminary GDP report was mostly upbeat, and the labor market was firing on all cylinders.
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.
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.
The record 1,178-point drop in the Dow will garner all the headlines today, but a sense of perspetive is in order, despite the chaos. The 113-point, or 4.1%, fall in the S&P 500 was very startling, but it merely returned the index to its early December level; it has given up the gains only of the past nine weeks.
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."
ADP's reported 158K increase in private payrolls was very close to our model-based estimate, so it doesn't change our 220K forecast for todays official payroll number, well above the 177K consensus.
We argued in the Monitor yesterday that the NFIB survey's hiring intentions number is the best guide to the trend in payroll growth a few months ahead. But today's November NFIB report will bring no new information on job growth because the key labor market elements of the survey have already been released.
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.
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.
It's always easy to find reasons to doubt single monthly observations of any economic time series, but our first chart makes it very clear that the labor market has strengthened markedly over the past few months. The underlying trend rate of growth in private payrolls is now above 300K for the first time in exactly 20 years, and we seen no reason to expect much change over the next few months.
In contrast to the strong December trade numbers in France--see here--yesterday's German data were soft. The seasonally adjusted trade surplus dipped to €21.5B in December, from €22.3B 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.
The reported drop in mortgage applications over the holidays is now reversing, not that it ever mattered.
The recovery in small business sentiment since the fourth quarter rollover has been extremely modest, so far.
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.
Markets clearly love the idea that the "Phase One" trade deal with China will be signed soon, at a location apparently still subject to haggling between the parties.
Headline inflation in Brazil remained low in October, and even breached the lower bound of the BCB's target range.
Demand in German manufacturing rebounded slightly at the end of Q1, though the overall picture for the sector remains grim.
The Fed today will do nothing to rates and won't materially change the language of the post-meeting statement.
National accounts data released last week rewrote the recent history of households' saving.
We had hoped that the breathtaking doubling of initial jobless claims to 6.65M, in the week ended March 28, would be followed by a steep drop in the week ended April 4; the data will be released today.
The 62K jump in jobless claims for the week ended September 2 is a hint of what's to come. Claims usually don't surge until the second week after major hurricanes, because people have better things to do in the immediate aftermath, so we are braced for a further big increase next week.
Last week's news that output per hour jumped by 0.9% quarter-on-quarter in Q3--the biggest rise since Q2 2011--has fanned hopes that the underlying trend finally is improving.
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.
Covid-19 efforts in Korea, plus Q1 front-loading of jobs budget, result in February surprise.
Payroll growth in September and October probably won't be materially worse than August's meager 96K increase in private jobs.
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.
Japan's monetary and credit trends were looking better, but now stand to be damaged by... the virus scare. Virus hit still to come for Japanese machine tool orders? Korea's jobless rate is back to its pre-August one-off plunge.
Mr. Trump's partial U-turn on September tariffs shows some semblance of an understanding of reality...that's a good thing. China's industrial production crushes June hopes of a swift recovery. Chinese consumers struggle. Chinese FAI: the infrastructure industry growth slowdown is especially worrying. Japan's strong core machine orders rebound in June probably faded in recent weeks. Korea's jobless rate will soon creep back up after remaining steady in July.
Japan most exposed workers felt the early Covid-19 hit in March.
BoJ programmes are propping up M2 growth; Japan's machine tool orders tumble will get worse before better
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.
Convention dictates that we lead with yesterday's Fed meeting, but it's hard to argue that it really deserves top billing.
A third wave of Covid-19 outbreaks is now underway. The first, in China, is now under control, and the rate of increase of cases in South Korea has dropped sharply. The other second wave countries, Italy and Iran, are still struggling.
The coronavirus outbreak has pushed inflation lower in the Andean economies as the shock drives them into the deepest recession on record.
The immediate impact of the Covid-19 crisis on the auto market was calamitous.
If the Redbook chain store sales survey moved consistently in line with the official core retail sales numbers, it would attract a good deal more attention in the markets. We appreciate that brick-and-mortar retailers are losing market share to online sellers, but the rate at which sales are moving to the web is quite steady and easy to accommodate when comparing the Redbook with the official data.
The Prime Minister has argued repeatedly during the general election campaign that Britain will prosper under a "strong and stable" Conservative government with a large majority. "Division in Westminster," she argued when calling the election last month, "...will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country."
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.
Mr. Macron's victory in France answers two questions for markets, at least in the short run. Firstly, France will stay in the Eurozone, and Mr. Macron will not call a referendum on EU membership. Mr. Macron has come to power with a mandate to strengthen economic integration and co-operation between Eurozone economies.
Our below-consensus 125K forecast for today's February payroll number is predicated on two ideas.
ADP's report of a 235K increase in private payrolls in February is not definitive evidence of anything, but it is consistent with the idea that labor demand remains very strong.
One bad month proves nothing, but our first chart shows that October's auto sales numbers were awful, dropping unexpectedly to a six-month low.
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.
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.
No single measure of labor demand is always a reliable leading indicator of the official payroll numbers, which is why we track an array of private and official measures.
The flow of data pointing to strength in the labor market has continued this week, on the heels of last week's report of a 250K jump in October payrolls.
In the wake of yesterday's ADP report, which showed private payrolls rising by only 163K, we have pulled down our forecast for today's official number to 170K.
The Brazilian Senate concluded last week the first vote- of-two- on the pension reform.
In the wake of Wednesday's ADP report, showing a mere 27K increase in private payrolls, we cut our payroll forecast to 100K.
We've been hearing a good deal about the slowdown in the rate of growth of consumer credit in recent months, and with the April data due for release today, it makes sense now to reiterate our view that the recent numbers are no cause for alarm.
Recent economic indicators in Mexico have been terrible. The worst of the recession seems to be over, but recent hard data have underscored the severity of the shock and made it clear that the recovery has a long way to go.
India's services PMI for June underscores the half-hearted nature of Unlock 1.0, with the daily number of new cases of Covid-19 still rocketing.
The short answer to the question posed by our title is: We don't know. But that's the point, because we shouldn't be needing to ask the question at all.
The next couple of months likely will see some activity data rebound to close to pre-Covid levels, fuelling hopes of a V-shaped recovery.
Markets often pay little attention to the monthly foreign trade numbers, but today's May data are important because they could easily make a big difference to expectations for second quarter GDP growth. The key question is the extent to which exports have recovered since the port dispute on the West Coast, which severely distorted trade flows in the early part of the year.
Japan's average year-over-year wage growth slowed sharply in May, but this mainly was a correction of the April spike.
Today's consumer credit report for April likely will show that the stock of debt rose by about $15B, a bit below the recent trend. The monthly numbers are volatile, but the underlying trend rate of increase has eased over the past year-and-a-half, as our first chart shows. The slowdown has been concentrated in the non-revolving component, though the rate of growth of the stock of revolving credit--mostly credit cards--has dipped recently, perhaps because of weather effects and the late Easter.
As recently as late 2008, the share of employee compensation in GDP was slightly higher than the average for the previous 20 years. But it would be wrong to argue, therefore, that the squeeze on labor is a phenomenon only of the past few years. It's certainly true that labor's share dropped precipitously from 2009 through 2011, and has risen only marginally since then.
The return to normal in the March payroll numbers, with a 196K headline increase, is another nail in the coffin of the "imminent recession" theory.
Our core view on the May payroll number remains that the single most likely cause of the unexpectedly modest increase is a seasonal adjustment error, triggered when the survey is conducted early in the month.
We have had a modest rethink of our June payroll forecast and have nudged up our number to 150K, still below the 180K consensus. Our forecast has changed because we have re-estimated some of our models, not because of the 172K increase in the ADP measure of private payrolls. ADP is a model-based estimate, not a reliable survey indicator.
The stock of bank lending to businesses is on course to fall in June, after a modest increase in May and huge jumps in March and April.
Many observers hoped that the silver lining of a slowdown in house price growth this year would be that more first-time buyers could step onto the first rung of the housing ladder. Instead, purchasing a first home has become even harder for FTBs with modest deposits.
Economic conditions remain challenging in Mexico, despite a modest improvement in leading indicators. The usual surveys currently are not well-suited to capture the economy's upturn from the Covid-19 collapse.
A casual glance at our char t below, which shows the number of job openings from the JOLTS report, seems to fit our story that the slowdown in payrolls in April and May--perhaps triggered by the drop in stocks in January and February--will prove temporary. Job openings dipped, but have recovered and now stand very close to their cycle high.
The single most surprising U.S. economic report ever published likely is explained very simply: We know a great deal about the numbers of people losing jobs, but not much about people finding jobs.
Speculation has mounted in the press that the Chancellor will raise the threshold for Stamp Duty Land Tax temporarily to £500K, from £125K, in today's Summer Statement.
We aren't perturbed by the undershoot in December payrolls, relative both to the October and November numbers and all the leading indicators.
We expect to see a 180K increase in November payrolls
The NFIB survey of small businesses today will show that July hiring intentions jumped by four points to +19, the highest level since November 2006. The NFIB survey has been running since 1973, and the hiring intentions index has never been sustained above 20.
Mortgage applications have risen, net, over the past couple of months, despite the 70bp surge in 30-year mortgage rates since the election. Indeed, we'd argue that the increase in applications is a result of the spike in rates, because it likely scared would-be homebuyers, triggering a wave of demand from people seeking to lock-in rates, fearing further increases.
The contrast between November's very modest 67K ADP private payroll number and the surprising 254K official reading was startling, even when the 46K boost to the latter from returning GM strikers is stripped out.
Japan's services sector PMI last week was disappointing.
Colombia was the fastest growing LatAm economy in 2019, due mostly to strong domestic demand, offsetting a sharp fall in key exports.
Korea's manufacturing PMI fell for a fourth straight month in April, dropping to 41.6, which is the lowest reading since January 2009.
We're very comfortable with the idea that the coronavirus is a broad deflationary shock to the U.S. economy.
The Bank of Korea's two main monthly economic surveys were very perky in January.
Data yesterday showed that German inflation roared higher at the start of the year, but the devil is in the detail.
FOMC members in fleeces took to the airwaves en masse on Friday morning from Jackson Hole, but most said pretty much what you'd expect them to say. Arch-hawks Loretta Mester and no-quite-so-hawkish Jim Bullard strongly suggested that they think the time to raise rates is very near, while super-dove Naryana Kocherlakota said he doesn't regard a near-term hike as "appropriate". No surprises there.
Yesterday's first estimate of full-year 2019 GDP in Mexico confirmed that growth was extremely poor, due to domestic and external shocks.
Chair Yellen's final FOMC meeting today will be something of a non-event in economic terms.
The value of Japanese retail sales bounced back strongly in December, rising 0.9% month-on-month, after a 1.1% drop in November.
Japan's headline jobless rate edged up to 2.8% in December, from 2.7% in November, but the increase was negligible, with the rate moving to 2.76% from 2.74%.
Yesterday's advance CPI data in Germany suggest that inflation fell slightly in August.
Economic data released last week underscored that Brazil's economic recovery is continuing; the effect of recent bold rate cuts and improving domestic fundamentals will further support the gradual recovery of the labour market.
The news in Brazil on inflation and politics has been relatively positive in recent weeks, allowing policymakers to keep cutting interest rates to boost the stuttering recovery.
Markets see a strong possibility, though not a probability, that the BoJ will cut rates on Thursday.
Political volatility is a recurrent theme in Brazil. Six members of President Michel Temer's cabinet resigned last Friday due to allegations of conflict of interest on a construction deal. Rumours that President Temer was involved in the affair stirred up market volatility and revived political risk concerns
The stage is set for the Fed to ease by 25bp today, but to signal that further reductions in the funds rate would require a meaningful deterioration in the outlook for growth or unexpected downward pressure on inflation.
French consumer confidence and consumption have been among the main bright spots in the euro area economy so far this year.
The headlines from Catalonia are as confusing as ever, but we are sticking to our view--see here--that regional elections are the only reasonable outcome of the chaos.
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 FOMC has gone all-in, more or less, on the idea that the headwinds facing the economy mean that the hiking cycle is over.
Yesterday's first estimate of Q2 GDP in Mexico confirmed that the economy has been under severe stress in recent months.
Japan's services PMI edged down to 52.0 in March, from 52.3 in February, taking the Q1 average to 52.0, minimally up from Q4's 51.9.
The clear message from the fourth quarter's national accounts, released last week, is that the economic recovery rests on unsustainable foundations. The U.K. has returned to bad habits and is financing expenditure today by borrowing. As this undermines future spending, it is only a matter of time before the U.K.'s recovery loses steam.
Today's October ADP measure of private payrolls likely will overshoot Friday's official number.
Data released in recent days confirmed the intensity of the Covid-related shock to the Chilean economy in Q2.
Under normal circumstances, sustained ISM manufacturing readings around the July level, 54.2, would be consistent with GDP growth of about 2% year-over-year.
The final July PMIs indicate that the post-referendum slump in activity has been even worse than the flash estimates originally implied. The manufacturing PMI was revised down to 48.2, from the 49.1 flash reading, while the services PMI was unrevised at 47.4, its lowest level since March 2009.
The continued gradual rise in new confirmed cases of Covid-19 lends more weight to the idea that the economy already has reopened as much as possible while containing the virus.
Yesterday's data kicked off the release of Eurozone Q3 growth numbers with a robust Spanish headline. Real GDP in Spain rose 0.8% quarter-on-quarter, slowing slightly from 0.9% in Q2, and le aving the year-over-year rate unchanged at 3.1%.
The September consumption data were a bit better than median expectations, with real spending rebounding by 0.6%, led by an 15.1% leap in the new vehicle component.
The virus outbreak has been relatively limited so far in Argentina, with 820 confirmed cases, but the numbers are rising rapidly.
A pair of closely-watched reports today will confirm that business and consumer confidence is tanking in the face of the coronavirus outbreak.
The only significant surprise in the terrible second quarter GDP numbers was the 2.7% increase in government spending, led by near-40% leap in the federal nondefense component.
Covid-19 has cut short a nascent recovery in housing market activity.
The national accounts look set to show that GDP growth in the fourth quarter was even stronger than previously estimated. Earlier this month, quarter-on-quarter growth in construction output in Q4 was revised up to 1.2%, from 0.2%. As a result, construction's contribution to GDP growth will rise by 0.07 percentage points.
Households' willingness to save a smaller fraction of their incomes goes a long way to explaining why the U.K. economy hasn't lost too much momentum since the Brexit vote.
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.
We have witnessed a dramatic shift in just a few weeks in perceptions of Mexico as an investment destination.
Yesterday's November inflation reports from Germany and Spain suggest that today's data for the Eurozone as a whole will undershoot the consensus.
Yesterday's economic news in the French economy was solid.
News that the U.K.'s departure from the E.U. has been delayed by six months, unless MPs ratify the existing deal sooner, appears to have done little to revive confidence among businesses.
Friday's advance GDP data provided the first solid evidence of a Q1 slowdown in the euro area economy.
Japan is one of the countries most exposed to economic damage from the coronavirus.
Yesterday's economic reports in the euro area were mixed.
Chancellor Javid told the Financial Times earlier this month that he wants to lift the rate of GDP growth to between 2.7% and 2.8%, the average rate in the 50 years following the Second World War.
Yesterday's FOMC , announcing a unanimous vote for no change in the funds rate, is almost identical to December's.
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.
The Fed's statement yesterday was unsurprising, acknowledging a "sharp" decline in economic activity and a significant tightening of financial conditions, which has "impaired the flow of credit to U.S. households and businesses."
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%.
Brazil's industrial sector continued to support the economy in Q3. The underlying tr end in output is rising and leading indicators point to further growth in the near term.
Manufacturers in the Eurozone are still suffering, but yesterday's final PMI data for April offered a few bright spots.
The Fed left rates on hold yesterday, as expected, repeating its long-held core view that inflation will rise to 2% in the medium-term, requiring gradual increases in the fed funds rate.
ADP's report that September private payrolls rose by 135K was slightly better than we expected, but not by enough to change our 150K forecast for tomorrow's official report.
China's official PMIs were little changed in August, with the manufacturing gauge up trivially to 51.3, from 51.2 in July and the non-manufacturing gauge up to 54.2, from 54.0.
Manufacturing in the Eurozone remained a strong driver of GDP growth in the third quarter. The headline EZ manufacturing PMI rose to 58.1 in September, from 57.4 in August, only a tenth below the initial estimate 58.2.
We are nervous about the first estimate of fourth quarter GDP growth, due today. The consensus forecast is a decent 3.1%, but we are struggling mightily to get anywhere near that.
Money supply data in the euro area are sending an increasingly upbeat signal on the economy. The increase in narrow money growth is the key variable here, now pointing to a noticeable acceleration in GDP growth later this year. Allowing for the usual lags between upturns in M1 and the economy, we should start to see this in the second and third quarter.
The models which generate the ADP measure of private payrolls will benefit in May from the strength of the headline industrial production, business sales and jobless claims numbers.
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.
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.
China's official manufacturing PMI for May, out tomorrow, will give the first indication of the coming hit from the resumption of its tariff war with the U.S.
The trade war with China is not big enough or bad enough alone to push the U.S. economy into recession.
Japanese retail sales were unchanged in October month-on-month, after a 0.8% rise in September.
Reporting on the German labour market has been like watching paint dry in this expansion, but yesterday's data were a stark exception to this rule.
Industrial profits in China collapsed by 38.3% year- over-year in the first two months of 2020, making December's 6.3% fall look like a minor blip.
Yesterday's advance CPI data in Germany suggest that EZ inflation is now rebounding slightly.
Today's FOMC meeting will be the first non-forecast meeting to be followed by a press conference.
The business cycle upturn in the Eurozone likely will remain resilient in the first half of 2017. Friday's money supply data showed that headline M3 growth increased to 5.0% in December, from 4.9% in November.
The recovery of consumer confidence in Korea remains undeterred by the lingering risk of a second wave.
The Fed made no changes to policy yesterday, as was almost universally expected.
We have argued recently that the year-over-year rates of core CPI and core PCE inflation could cross over the next year, with core PCE rising more quickly for the first time since 2010.
Volatile commodity prices make this week's inflation data in Germany and the Eurozone a wild card. Crude oil in euro terms is down about 20% month-to-month in July, which will weigh on energy prices. In Germany, though, we think higher core inflation offset the hit from oil, pushing inflation slightly higher to 0.4% year-over-year in July from 0.3% in June.
Implied volatility on the euro is now so low that we're compelled to write about it, mainly because we think the macroeconomic data are hinting where the euro goes next.
Data released yesterday confirm that Brazil's recovery has continued over the second half of the year, supported by steady capex growth and rebounding household consumption.
Last week's strong ISM manufacturing survey for November likely will be followed by robust data for the non-manufacturing sector today, but the headline index, like its industrial counterpart, likely will dip a bit.
Yesterday's data showed that the euro area PMIs were a bit stronger than initially estimated in November.
The relative strength of the investor and consumer confidence reports for March, released this week, signal a better outlook for the Mexican economy.
Data last Friday showed Japan's labour market trends deteriorating.
Brazil's December industrial production report, released yesterday, confirmed that the recovery was stuttering at the end of last year.
Today's December international trade numbers could easily signal a substantial upward revision to fourth quarter GDP growth. When the GDP data were compiled, the December trade numbers were not available so the BEA had to make assumptions for the missing numbers, as 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.
We have been telling an upbeat story about the EZ economy in recent Monitors, emphasizing solid services and consumers' spending data.
Inflation pressures in the Eurozone edged higher last month, reversing weakness at the start of the year.
September's Markit/CIPS PMIs indicate that the economy still is stuck in a low gear.
We continue to distrust the suggestion from the Markit/CIPS PMIs that the economy is in recession.
We look for a 150K increase in September payrolls, rather better than the August 130K headline number, which was flattered by a 28K increase in federal government jobs, likely due to hiring for the 2020 Census.
We have no reason to think the underlying trend in payroll growth has changed--the 235K average for the past three months is as good a guide as any--but the balance of risks points clearly to a rather lower print for August. Two specific factors, neither of which have any bearing on the trend, are likely to have a significant influence on the numbers, and both will work to push the number below the 217K consensus.
Households' decision to reduce their saving rate sharply was the main reason why economic growth exceeded forecasters' expectations in the aftermath of the Brexit vote.
China hit back against the Trump-administration tariffs yesterday, targeting Mr. Trump's electorate.
Activity data from Colombia over the past quarter have been strong. Real GDP expanded by a relatively robust 2.8% year-over-year in Q2, and is on track to post a 3.2% increase in Q3.
Colombia's BanRep stuck to the script on Thursday by leaving the policy rate on hold at 4.25%.
Yesterday's advance CPI report in the Eurozone showed that inflation pressures are rising rapidly. Inflation rose to 1.1% year-over-year in December, from 0.6% in November. Surging energy inflation was the key driver, and this component likely will continue to rise in the next few months. Core inflation, however, stayed subdued, rising only slightly to 0.9%, from 0.8% in November.
It will take a while for the economic data in the euro area fully to reflect the Covid-19 shock, but the incoming numbers paint an increasingly clear picture of an improving economy going into the outbreak.
The comforting 183K increase in February private payrolls reported by ADP yesterday likely overstates tomorrow's official number.
Fed Chair Powell yesterday said about as little as he could without appearing to ignore the turmoil in markets since the President announced his intention to apply tariffs to imports from Mexico: "We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective."
The Prime Minister told the public to "face up to some hard facts" about Brexit in her speech on Friday, but she still clung to an unachievable vision of what Britain can hope to achieve.
The economic slowdown in China is old news for Eurozone investors.
The recent March economic activity reports for Chile have been terrible, showing the first signs of the Covid-19 shock, and worse is to come.
If the underlying trend in payroll growth is about 200K, then a weather-depressed 98K reading needs to be followed by a rebound of about 300K in order fully to reverse the hit. But the consensus for today's April number is only 190K, and our forecast is 225K.
The week started well for Brazil's President Bolsonaro.
Inflation in the Eurozone tumbled last month, increasing the pressure on Mr. Draghi to deliver another dovish message when the central bank meets on Thursday.
Payroll growth rebounded to 223K in May, after two sub-200K readings, and we're expecting today's June ADP report to signal that labor demand remains strong.
The Caixin services PMI jumped sharply to 53.9 in December from 51.9 in November. All the PMIs picked up significantly, but we find this hard to believe and suspect seasonality is to blame, though the adjustment is tricky.
Headline Eurozone PMI data have declined steadily since the beginning of the year, but the June numbers stopped the rot.
Korea's economic data for June largely were poor, and are likely to make more BoK board members anxious ,ahead of their meeting on July 18.
We don't believe that payrolls rose only 138K in May. History strongly suggests that when the May payroll survey is conducted relatively early in the month, payroll growth falls short of the prior trend.
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.
Thursday and Friday were busy days for LatAm economy watchers. In Brazil, the data underscored our view that the economy is on the mend, but the recent upturn remains shaky, and external risks are still high.
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.
Investors have concluded from June's Markit/CIPS PMIs and Governor Carney's speech on Tuesday that the chance of the MPC cutting Bank Rate before the end of this year now is about 50%, rising to 55% by the time of Mr. Carney's final meeting at the end of January.
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.
BanRep accelerated the pace of easing last Friday, cutting Colombia's key interest rate by a bold 50 basis points, to 5.75%. Economic activity has been under severe pressure in recent months. The economy expanded by only 1.1% year-over-year in Q1, following an already weak 1.6% in Q4.
For some economists and political analysts the surprising result of the U.K.'s EU referendum symbolises one of the biggest threats to the structure of the post-war social-liberal market economy. To this school of thought, the vote proved that the discontent of a pressured and disenfranchised working/middle class is rising, threatening to topple economies and political institutions.
The most positive thing to say about the EZ manufacturing PMI at the moment is that it has stopped falling.
The Fed is in a double bind.
The Caixin manufacturing PMI was steady in May, at 50.2, in contrast to the official gauge published on Friday, which dropped to 49.5, from April's 50.2.
Today's December payroll number was a tricky call even before yesterday's remarkably strong ADP report, showing private payrolls soaring by 271K.
German inflation surged in December, pointing to an upside surprise in today's advance EZ report. The headline inflation rate rose to a three-year high of 1.7% year-over-year in December, from 0.8% in November. This was the biggest increase in the year- over-year rate since 1993.
LatAm assets and currencies enjoyed a good start to the week, following the agreement between the U.S. and China to pause the trade war.
Japan's labour market is already tight, but last week's data suggest it is set to tighten further.
The ADP report yesterday has not changed our view that tomorrow's payroll number will be about 180K, well below our estimate of the underlying trend, which is about 250K. ADP's numbers are heavily influenced by the BLS data for the prior month, and tell us little or nothing about the next official report.
The fundamentals underpinning our forecast of solid first half growth in consumers' spending remain robust.
Brazil's December industrial production and labour reports, released late last week, confirmed that the recovery was struggling at the end of last year.
It probably would be wise to view the increase in the ISM manufacturing index in December with a degree of skepticism. The index is supposed to record only hard activity, but we can't help but wonder if some of the euphoria evident in surveys of consumers' sentiment has leaked into responses to the ISM. That said, the jump in the key new orders index-- which tends to lead the other components--looked to be overdue, relative to the strength of the import component of China's PMI.
The Caixin manufacturing PMI for January was grim, indicating that China's start to the year wasn't as benign as the official surveys suggested.
The unexpectedly small 2,760K drop in the ADP measure of May private payrolls is consistent, at least, with the idea that the partial reopening of several states in the early part of the month prompted an immediate wave of rehiring.
Covid-19 has taken a large and immediate toll on house prices, but bigger damage likely lies ahead.
This week's March economic activity reports in Chile have been relatively strong, with the industrial sector expanding briskly and retail sales solid.
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 Fed surprised no-one yesterday, leaving rates on hold, saying nothing new about the balance sheet, and making no substantive changes to its view on the economy. The statement was tweaked slightly, making it clear that policymakers are skeptical of the reported slowdown in GDP growth to just 0.7% in Q1: "The Committee views the slowing in growth during the first quarter as likely to be transitory".
April payroll growth likely will be reported at close to 200K. Overall, the survey evidence points to a stronger performance, but they don't take account of weather effects, and April was a bit colder and snowier than usual. We're not expecting a big weather hit, but some impact seems a reasonable bet.
LatAm data in recent days have confirmed that efforts to contain the coronavirus, plunging global trade, and the collapse in oil prices, are dealing a severe economic and financial blow.
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.
The downturn in global trade looks set to turn a corner, at least judging by the outlook for Korean exports, which are a key bellwether.
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.
Japan's jobless rate inched up to 2.5% in January, from 2.4% in December.
We aren't in the business of trying to divine the explanation for every twist and turn in the stock market at the best of times, and these are not the best of times.
The ECB will leave its key refinancing and deposit rates unchanged today, at 0.00% and 0.5%, respectively, but we are confident that the central bank will expand its existing stimulus efforts via a boost and extension of the Pandemic Emergency Purchase Program.
We are revising down our forecasts for quarteron-quarter GDP growth in Q1 and Q2 to 0.3% and 0.2%, respectively, from 0.4% in both quarters previously, to account for the likely impact of the coronavirus outbreak.
Markets were left somewhat disappointed yesterday by the G7 statement that central banks and finance ministers stand ready "to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks."
Investors focussed last week on Chair Powell's semi-annual Monetary Policy Testimony, but he said nothing much new.
Brazil is now paying the price of President Rousseff's first term, which was characterized by unaffordable expansionary policies. As a result, inflation is now trending higher, forcing the BCB to tighten at a more aggressive pace than initially intended--or expected by investors--depressing business and investment confidence.
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.
From a bird's-eye perspective, the argument for continued steady Fed rate hikes is clear.
We've been consistent in saying that Japanese capex would roll over this year, after strength in the first three quarters was seen by the authorities and many commentators as a sign of resilience.
The Brazilian central bank cut its benchmark Selic interest rate by 50bp to 4.50% on Wednesday night.
Retail sales have consistently disappointed markets this year, but investors' concerns are misplaced. The rate of growth of core sales has slowed because the strength of the dollar has pushed down the prices of an array of imported consumer goods, and people appear to have spent a substantial proportion of the saving on services.
Today's industrial production data will confirm that EZ manufacturing suffered a slow start to Q4. Advance country data signal a 0.2% month-to-month fall in October, slightly worse than the consensus, 0.0%.
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.
On the face of it, the upturn in initial jobless claims since late September appears to signal a softening in the economy.
China's October activity data showed signs of the infrastructure stimulus machine sputtering into life. Consensus expectations appear to hold out for a continuation into November, but we think the numbers will be disappointing.
While we were out, most of the action was on the political front, while the economic data mostly were unexciting.
The jump in core inflation in recent months is about as alarming as the sudden decline in the same period last year; that is, not very.
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.
The headline figures from yesterday's GDP report gave a bad impression. September's 0.1% month-to- month decline in GDP matched the consensus and primarily reflected mean-reversion in car production and car sales, which both picked up in August.
Our forecast for a 0.3% increase in the September core PPI, slightly above the underlying trend, is even more tentative than usual.
Today's FOMC minutes will add flesh to the bones of the three dissents on September 21. The FOMC statement merely said that each of the three--Loretta Mester, Esther George and Eric Rosengren--preferred to raise rates by a quarter-point.
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.
Treasury yields closed Friday a few basis points higher across the curve than the day before the surprisingly soft March payroll report. A combination of slightly less dovish-than-expected FOMC minutes, a hawkish speech from Richmond president Jeff Lacker, rising oil prices, and robust--albeit second-tier--data last week seem to have done the work.
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.
Japan's money and credit data have shown signs of life in recent months, but that's all set to change quickly, due to the disruptions caused by the outbreak of the coronavirus.
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.
Official, real GDP growth was low in Q1, at 1.4% quarter-on-quarter, down from 1.6% in Q4.
Friday's economic data in the Eurozone provided further evidence of a sharp rebound in manufacturing output as the economy reopened. Industrial production in France jumped by 19.6% month-to-month in May, lifting the year-over-year rate to -23.4% from -35.0% in April.
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.
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.
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.
A dearth of properties for sale has helped to ensure that house prices have continued to rise since the Brexit vote, despite weaker demand. But now, signs are emerging that demand and supply are coming closer to balance
Chair Yellen broke no new ground in her Testimony yesterday, repeating her long-standing view that the tightening labor market requires the Fed to continue normalizing policy at a gradual pace.
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.
French manufacturing cooled at the end of 2016. Industrial production slipped 0.9% month-to-month in December, partially reversing an upwardly revised 2.4% jump in November. The main hits came from declines in oil refining and manufacturing of cars and other transport equipment.
China's GDP report for the fourth quarter, due on Friday, is likely to show that economic growth has stabilised, on the surface.
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.
Japan's producer price inflation levelled off in June and, for now, both commodity prices and currency moves in the first half imply that inflation should fall in the second half.
Thursday's CPI report in Mexico showed that inflation is edging lower. We are confident that it will continue to fall consistently during Q1, thanks chiefly to the subpar economic recovery, low inertia and the effect of the recent MXN rebound.
If the Phase One trade deal with China is completed, and is accompanied by a significant tariff roll-back, we'll revise up our growth forecasts, but we'll probably lower our near-term inflation forecasts, assuming that the tariff reductions are focused on consumer goods.
Financial assets of all stripes are, by most metrics, expensive as we head into year-end, but for some markets, valuations matter less than in others. The market for non-financial corporate bonds in the euro area is a case in point.
In previous Monitors--see here--we've suggested that, thanks to the coronavirus, China simply will lose some of the spending that would have gone on during the holiday this year.
The latest GDP data confirm that the economy ended last year on a very weak note.
On a headline level, the Spanish economy conformed to its image as the star performer in the EZ in Q4.
The downturn in equity prices deepened yesterday, with the FTSE 100 index closing at 5,537, 22% below its April 2015 peak. We remain unconvinced, however, that financial market turmoil is set to push the U.K. economy into a recession. We continue to take comfort from the weakness of the past relationship between equity prices and economic activity.
Our suggestion that the ECB could still raise the deposit rate later this year, by 20bp to -0.4%, has met with strong scepticism in recent conversations with readers.
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.
It appears to be something of an article of faith among economic advisors to President-elect Trump that substantial fiscal stimulus will generate faster growth without boosting inflation, because both labor participation and productivity growth will rise.
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.
China concludes its annual Central Economic Work Conference today, where the economic targets and the agenda for next year are set.
China's 1.8% downshift in the RMB/dollar reference rate will make only a microscopic difference to the pace of U.S. economic growth and inflation. It will not deter the Fed from raising rates if the domestic labor market continues to tighten, as all the data suggest. The drop in the RMB merely restores the nominal exchange rate to its fall 2012 level, since which time the real exchange rate has risen by some 20%, according to the BIS.
The FOMC did mostly what was expected yesterday, though we were a bit surprised that the single rate hike previously expected for next year has been abandoned.
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.
The outlook for the French economy is changing on a daily basis these days.
Mexico's economy is not accelerating, but it is holding up very well in difficult circumstances, with rising domestic political risk and stifling interest rates.
The combination of astounding fourth quarter payroll numbers and weak GDP growth has prompted a good deal of bemused head-scratching among investors and the commentariat. The contrast is startling, with Q4 private payrolls averaging 276K, a 2.4% annualized rate of increase, while the initial estimate for growth seems likely close to 1%. Even on a year-over-year basis, stepping back from the quarterly noise, Q4 growth is likely to be only 2% or so.
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.
The 0.1% dip in the core CPI in March was the first outright decline in three years, but we expect another-- and bigger--decline in today's April numbers.
The Q1 GDP figures, released on Wednesday, likely will show that the quarter-on-quarter decline in economic activity eclipsed the biggest decline in the 2008-to-09 recession--2.1% in Q4 2008--even though the U.K. went into lockdown towards the very end of the quarter.
India's shocking PMIs for April leave little doubt that the second quarter will be bad enough to result in a full-year contraction in 2020 GDP, even if economic activity recovers strongly in the second half.
All major EZ governments are now in the process of lifting lockdowns, but investors should expect less a grand opening, more of a careful tip-toeing.
We have downgraded our 2019 and 2020 China GDP forecasts on previous occasions because monetary conditions have been surprisingly unresponsive to lower short-term rates.
On the face of it, small business have taken quite a hit over the past few months. The headline index from the NFIB survey of small businesses has dropped to a nine-month low of 95.2 in March from 100.4 in December. As a result, the gap between the NFIB and the ISM manufacturing indexes, which had been narrowing, has widened again.
China's money and credit data for February were reassuring, at least when compared with the doomsday scenario painted, so far, by other key indicators for last month.
We have drawn attention over the past couple of weeks in our daily Coronavirus Update to the rising trend in new cases in some states, mostly in the South.
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.
Inflation in Brazil ended 2017 well under control, despite December's modest overshoot. This will allow the BCB to cut rates further in Q1 to underpin the economic recovery.
Chair Yellen has become quite good at not giving much away at her semi-annual Monetary Policy Testimony.
In March, CPI rents--the weighted average of primary and owners' equivalents rents--rose by 0.35% month- to-month.
Brazilian political risk remains high, due mainly to President Bolsonaro's gross mismanagement of the Covid-19 crisis, but, as we have argued in previous Monitors, it is unlikely to deter policymakers from further near-term monetary easing.
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.
We are still annoyed, for want of a better word, by the May payroll numbers. Specifically, we're annoyed that we got it wrong, and we want to know why. Our initial thoughts centered on the idea that the plunge in the stock market in the first six weeks of the year hit business confidence and triggered a pause in hiring decisions, later reflected in the payroll numbers.
The effects of Covid-19--both negative and positive--on Korea's labour market certainly were felt in February.
Sterling leapt to $1.27, from $1.22 last week, amid some positive signals from all sides engaged in Brexit talks.
Hard data for Brazil and Mexico, released last week, support the case for further interest rate cuts.
Yesterday's final CPI report in Germany confirmed the initial estimate that inflation was unchanged at 0.4% year-over-year in August. Deflation in energy prices eased further, but the headline was pegged back by a small fall in the core rate to 1.2% year-over- year, from 1.3% in July.
The U.K. Monitor will be on a short break soon for paternity leave, so we are taking this opportunity to preview next week's data releases.
The EU's decision to grant the U.K. an extension under Article 50, until October 31, reveals two key aspects of continental Europe's position on Brexit.
The hard economic data in Brazil were relatively solid while we were off last week, supporting our view that the economy was experiencing a good spell at the start of the year just before the coronavirus hit.
Friday's detailed October CPI report in Germany confirmed that inflation pressures are steadily rising. Inflation rose to 0.8% year-over-year in October, from 0.7% in September, lifted mostly by a continuing increase in energy prices.
September's labour market report suggests that wage growth won't continue to rise for much longer.
Manufacturing in the EZ was held above water by Ireland at the end of Q3.
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.
Japan's PPI data yesterday confirmed that October was a turning point for prices--due to the consumption tax hike--despite the surprising stability of CPI inflation in Tokyo for the same month.
LatAm's economies are starting to expand at a relatively healthy pace, inflation is more or less under control and near-term growth prospects are positive.
We remain confident--see here--that today's Q3 GDP report in Germany will be a shocker, but this already is priced-in by markets.
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.
Yesterday's data showed that growth in the EZ slowed in the second quarter.
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.
Yesterday's EZ manufacturing data were slightly underwhelming, at least compared to expectations.
Brazil's recession carried over into the middle of Q2, but with diminishing intensity in some economic sectors.
We aren't much bothered by the one-tenth overshoot in the June core CPI, reported yesterday.
Retail sales data released yesterday for Brazil confirmed that weakness in private consumption remains a key challenge for the economy. Retail sales plunged 0.9% month-on-month in May, equivalent to a 4.5% fall year-over-year, the lowest rate since late 2003. On a quarterly basis, sales are headed for a 2% contraction in Q2, pointing to a -0.5% GDP contribution from consumer spending.
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.
Industrial data released this week showed that the Mexican economy stumbled during the second quarter. Private consumption, however, continues to rise, albeit at a more modest pace than in recent months. The ANTAD same store sales survey rose 5.3% year-over-year in June, up from 2.8% in May, but this is misleading.
Markets' reaction last week to the ECB's October meeting accounts--see here--shows that investors are beginning to take seriously the idea of an inflection point in Eurozone monetary policy.
The weekly jobless claims numbers are due Thursday, as usual, but in the wake of a flood of emails from readers, all asking a variant of the same question-- should we be worried about the rise in continuing jobless claims?--we want to address the issue now.
The Bank of England won't set markets alight today. We expect another 9-0 vote to leave rates unchanged at 0.25%, and to continue with the £50B of gilt purchases and $10B of corporate bond purchases announced in August. This is not to say, though, that everything is plain sailing for the Monetary Policy Committee.
The Fed's unanimous vote for a 25bp rate hike was overshadowed by the bump up in the dotplot for next year, with three hikes now expected, rather than the two anticipated in the September forecast. Chair Yellen argued the uptick in the rate forecasts was "tiny", but acknowledged that some participants moved their forecasts partly on the basis that fiscal policy is likely to be eased by the new Congress.
Following this week's 25bp Fed hike, the PBoC hiked the main interest rates in its corridor by... 5bp. The move was unexpected so the RMB strengthened modestly; commentary is full of how this means the deleveraging drive is serious.
The EZ Q4 GDP data narrowly avoided a downward revision in yesterday's second estimate.
Inflation in the Andean economies ended 2019 well within central banks' objectives, despite many domestic and external challenges.
China's trade surplus jumped to a six-month high of $46.8B in December, from $37.6B in November, on the back of a strong increase in exports.
We're expecting to see the sixth straight drop in initial jobless claims this week, though we think the 2,500K consensus forecast is too ambitious.
We take little comfort from the fact that the 2.0% quarter-on-quarter drop in Q1 GDP was a bit smaller than the consensus forecast, 2.5%, and the 3.0% fall pencilled-in by the MPC in its Monetary Policy Report.
In theory, the headline labour market data in France should be a source of comfort and support for the new government.
Brazil's retail sales data undershot consensus in August, falling by 0.5% after four straight gains. But we think this merely a temporary softening, following the strong performance in recent months.
Now that the run of unfavorable base effects in the core CPI--triggered by five straight soft numbers last year--is over, we're expecting little change in the year- over-year rate through the remainder of this year.
China's M2 growth slowed to 8.2% year-over-year in August, from 8.5% in July
Another month, another strong set of labour market data which undermine the case for the MPC to cut Bank Rate, provided a no-deal Brexit is avoided.
Investors are busily fitting narratives to the sudden reversal in global bond markets. We think a correction was long overdue, but a combination of three factors provides a plausible rationale for the rout, from an EZ perspective.
Households remain the key driver of the cyclical recovery in the Eurozone. We have seen, so far, little sign that investment will be able convincingly to take over the baton if momentum in consumers' spending slows. The average rate of growth of investment since 2013 has been 0.5%, about two-thirds of the pace seen in previous cyclical upturns. Weakness in construction--about 50% of total euro area investment--has been one of the key factors behind of the under performance.
The political situation in Spain remains an odd example of how complete gridlock can be a source of relative stability.
Data over the weekend revealed a further slowdown in China's CPI inflation, to 1.5% in February, from 1.7% in January.
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.
Analysis of the economy's potential to recover later this year from extreme weakness in Q2 has focussed largely on the extent to which virus-related restrictions will be lifted.
More depressing economic numbers in LatAm have been released in recent days, and high frequency data continue to show a near-term bleak outlook.
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.
PM Abe last week asked the cabinet to put together a package of measures in a 15-month budget aimed at bolstering GDP growth through productivity enhancement, in addition to the shorter-term goal of disaster recovery.
While we were away, the advance Q2 GDP report in the Eurozone confirmed our expectations of a strong first half of the year for the economy. Real GDP rose 0.6% quarter-on-quarter, the same pace as in Q1, lifting the year-over-year rate to a cyclical high of 2.1%.
Peru's central bank left its policy interest rate unchanged at 3.75% last week, but signalled that further easing is on the way. According to the press release accompanying the decision, policymakers noted that inflation expectations are within their target range and still falling.
We have no argument with the FOMC's view that the Covid crisis is a disinflationary event, but the run of three straight outright month-to-month declines in the core CPI likely came to an end in June.
Today's official euro area manufacturing report will be a corker.
The Fed will hike by 25 basis points today, but what really matters is what they say about the future, both in the language of the statement and in the dotplot for this year and next.
The Fed was more hawkish than we expected yesterday.
Germany's newly-appointed finance minister, Olaf Scholz, proudly announced earlier this month that his country would be running a budget surplus of €63B over the next four years--about 1.9% of GDP between now and 2022--some €14B more than initially estimated.
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.
Inflation in Brazil Ended 2019 Above the BCB's Target; 2020 will be Fine
Industrial production in India turned around sharply in November, rising by 1.8% year-over-year, following October's 4.0% plunge and beating the consensus forecast for a trivial 0.3% uptick.
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.
In recent years only one event has made a material difference to the growth path of the U.S. economy, namely, the plunge in oil prices which began in the summer of 2014. The ensuing collapse in capital spending in the mining sector and everything connected to it, pulled GDP growth down from 2½% in both 2014 and 2015 to just 1.6% in 2016.
The Fed surprised no-one by raising rates 25bp yesterday and leaving in place the median forecast for three hikes next year and two next year.
We've already raised a red flag for today's second Q4 GDP estimate in the Eurozone, but for good measure, we repeat the argument here.
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.
Japan's GDP likely dropped by a huge 0.9% quarter-on-quarter in Q4, after the 0.5% increase in Q3, with risks skewed firmly to the downside.
Chinese PPI inflation dropped again in March to 3.1%, from February's 3.7%. Commodities were the driver, but base effects should mean the headline rate won't fall further in coming months; it is more likely to rise in Q2.
The seasonally adjusted trade surplus in Germany slipped to €19.6B in July, from €21.2B in June, its lowest since April, and we are confident that it has peaked for this cycle.
Yesterday's economic headlines in the Eurozone were pleasant reading.
On the face of it, the timing of the drop in the E.C.'s measure of consumers' confidence, to its lowest level since July 2016 in April, is peculiar.
If you apply a seasonal adjustment to a seasonally adjusted series, it shouldn't change. When you apply a seasonal adjustment to the U.S. GDP numbers, they do change. First quarter growth, reported Friday at just 0.7%, goes up to 1.7%, on our estimate.
Yesterday's ECB meeting was a much more assured affair, compared to the March calamity. The central bank left its key refinancing and deposit rates unchanged, at 0.00% and -0.5%, respectively, and also maintained the pace and guidance on its two asset purchase programs.
The Office for Budget Responsibility has decided to press ahead with the publication of new fiscal forecasts on November 7, despite the government's decision to postpone the Budget until after the next election.
The Brazilian Central Bank's policy board-- COPOM--voted unanimously on Wednesday to cut the Selic rate by 50bp to 5.00%, as expected.
We expect to see a 70K increase in October payrolls today.
The latest official data show that net migration to the U.K. hasn't fallen much, despite all the uncertainty created by the Brexit vote.
House purchase mortgage approvals by the main street banks jumped to 40.1K in January, from 36.1K in December, fully reversing the 4K fall of the previous two months, according to trade body U.K. Finance.
The entire 10.5% increase in personal income in April, reported on Friday, was due to the direct stimulus payments made to households under the CARES Act.
Data released in recent days have started to reveal a story of horror and misery in the Brazilian economy.
The fact that Brazilian economy shrank in the first quarter was never in doubt; what really mattered was the pace of contraction. Surprisingly; the decline was just 0.2% quarter-on-quarter in Q1, above market expectations, but still down after the meagre 0.3% gain in Q4.
Chile's April retail sales data, released on Monday, show that private consumption started the second quarter on a solid footing. Sales rose 3.0% month-to-month, pushing the year-over-rate up to 7.9% from 1.4% in March and an average of 4.0% in Q1. The headline was boosted by a favourable calendar effect, as April this year had two more trading days than April 2015.
Yesterday's wall of data told us a bit about where the economy likely is going, and a bit about how it started the first quarter. The January trade and inventory data were disappointing, but the February Chicago PMI and consumer confidence reports were positive.
Money supply data in the euro area disappointed yesterday. Growth in M3 fell to 4.6% year-over-year in April, from 5.0% in March, due to an accelerated fall in the pace of narrow money growth. M1 rose 9.7% year-over-year, down from 10.1% in March. It was hit by lower growth in both overnight deposits and currency in circulation.
The BoJ yesterday kept the policy balance rate at -0.1%, and the 10-year yield target at "around zero", in line with the consensus.
The more headline hard data we see in the Eurozone, the more we are getting the impression that 2019 is the year of stabilisation, rather than a precursor to recession.
The early Q4 hard data in Germany recovered a bit of ground yesterday.
Japan's GDP growth was revised up, to 0.4% quarter-on-quarter in Q3, from 0.1% in the preliminary reading.
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 softening in payroll growth in November appears mostly to be a story about short-term noise, rather than a sign that tariffs are hurting or that the broader economy is slowing.
The reported 225K jump in payrolls in January was even bigger than we expected, but it is not sustainable. The extraordinarily warm weather last month most obviously boosted job gains in construction, where the 44K increase was the biggest in a year
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
Slowly but surely, it is becoming respectable to argue that central bank policy in the developed world is part of the problem of slow growth, not the solution. We have worried for some time that the signal sent by ZIRP--that the economy is in terrible shape--is more than offsetting the cash-flow gains to borrowers.
Yesterday's aggregate economic data for the euro area showed that inflation rose slightly in August. The headline rate rose to a four-month high of 1.5% in August from 1.3% in July. The rate was lifted mainly by energy inflation, rising to 4.6% from 2.2% in July, but we think the rebound will be short-lived.
The Fed will do nothing today, but the FOMC's statement will re-affirm the intention to continue its "gradual" tightening.
Industrial output in Chile struggled late in the third quarter, falling 1.3% month-to-month in September. The year-over-year rate, calendar and seasonally adjusted, rose 2.4% in September, down from a revised 5.3% in August.
Mexico's economy grew 1.0% quarter-on-quarter in Q3, the fastest pace since 2014, following a 0.2% contraction in Q2, according to the preliminary report published yesterday.
The latest national accounts show that the economy is holding up much better in the face of heightened Brexit uncertainty than previously thought.
Leading indicators all point to a solid August payroll number. Survey-based measures of the pace of hiring signal a 200K-plus increase, and jobless claims--a proxy for the pace of gross layoffs--are at a record low as a share of the workforce.
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 economic data in the euro area provided the first piece of evidence of the slump in Q2 GDP, but added to the picture of a relatively resilient German economy.
Japan's main activity data for April were massively disappointing, presaging the sharper GDP contraction we expect in Q2, compared with Q1.
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.
The huge rebound in September's ISM non- manufacturing survey, reported yesterday, strongly supports our view that the August drop was more noise than signal.
The Fed's decisions over the next few months hinge on the relative importance policymakers place on the apparent slowdown in payroll growth and the unambiguous acceleration in wages. We qualify our verdict on the payroll numbers because the January number was very close to our expectation, which in turn was based largely on an analysis of the seasonals, not the underlying economy.
The underlying trend in payroll growth is running at about 225K-to-250K, perhaps more, and the leading indicators we follow suggest that's a reasonable starting point for our December forecast. The trend in jobless claims is extraordinarily low and stable--the week-to-week volatility is eye-catching, especially over the holidays, but unimportant--and indicators of hiring remain robust. The unusually warm weather in the eastern half of the country between the November and December survey weeks also likely will give payrolls a small nudge upwards, with construction likely the key beneficiary, as in November.
Data released this week in LatAm are the last calm before the coronavirus storm.
The headline number in today's NFIB survey of small businesses probably will look soft. The index is sensitive to the swings in the stock market and we'd be surprised to see no response to the volatility of recent weeks. We also know already that the hiring intentions number dropped by four points, reversing December's gain, because the key labor market numbers are released in advance, the day before the official payroll report.
Unanticipated movements in the Markit/CIPS services PMI often provoke big market reactions, despite its shortcomings as an indicator of the pace of growth. We suspect December's PMI, released today, could surprise to the downside, reversing most of its rise in November to 55.9 from 54.9 in October. Regardless, we place more weight on the official data, which is more comprehensive and shows clearly the recovery is slowing.
Disappointing inflation data remain a critical dark spot in the context of otherwise solid evidence of a firming cyclical recovery. Advance data indicate that inflation was unchanged at a mere 0.2% year-over-year in December, with falling food inflation and a dip in services inflation offsetting easing deflation in energy prices. Headline inflation likely will be volatile in coming months. Base effects will push up the year-over-year rate in energy price inflation further in Q1, but we are wary that continued declines in food inflation could offset this effect.
Stanley Fischer said something interesting and potentially very revealing in the Q&A following his speech Tuesday afternoon at the Council on Foreign Relations. The Fed Vice-Chair argued that wage increases of 3% are "where people would like to be", meaning, presumably, that he believes sustained wage gains at this pace are consistent with the Fed's 2% medium-term inflation forecast.
With financial markets still turbulent and the Governor stating only two weeks ago that economic conditions do not yet justify a rate hike, the Inflation Report on Thursday will not signal imminent action. Nonetheless, higher medium-term forecasts for inflation are likely to imply that the Committee still envisions raising interest rates this year.
The headline ISM non-manufacturing index is not, in our view, a leading indicator of anything much. The survey covers a broad array of non manufacturing activity, including mining, healthcare, and financial services, but most of the time it tends to follow the track of real core retail sales, as our first chart shows.
Brazil's recession has been severe, triggered by the downturn in the commodity cycle, which revealed the underlying structural weaknesses in the economy. This set off an acute shock in domestic demand, but it has bottomed in recent months and we now expect a gradual recovery to emerge.
We are pretty bullish about the prospects for the economy this year, but we try not to let our core view interfere with our take on the individual indicators. And our analysis suggests that the odds strongly favor a "disappointing" headline payroll number today; we have revised down our forecast to 160K from our previous 175K estimate.
The underlying trend in payroll growth probably has not changed significantly from the 228K average monthly gains recorded last year. But the average hides wide variations, some triggered by seasonal adjustment problems and others by one-time weather effects or unavoidable and random sampling error. January's below-trend 151K increase was likely a victim of seasonal problems, because payroll gains in recent years have tended to be soft at the start of the year after outsized fourth quarter increases.
China's official PMIs for March surprised well to the upside, cheering markets across Asia.
Yesterday's March labour market data in Germany were surprisingly strong
Data released yesterday showed that the labour market in Brazil looks relatively resilient to the collapse in economic activity.
Recent economic weakness in Brazil, particularly in domestic demand, and the ongoing deterioration of confidence indicators, have strengthened the case for interest rate cuts.
Eurozone inflation eased slightly to 0.2% year-over- year in June, down from 0.3% in May, according to the advance data but we continue to think that the trend has turned up. A 5.1% fall in energy prices, accelerating from a 4.8% in May, was partly to blame for the fall in June. But the key driver was the sharp drop in services inflation to 1.0% from 1.3% in May, likely due to volatility in package holiday prices.
The Eurozone escaped deflation last month, and we doubt it will return in this business cycle. Inflation rose to 0.1% year-over-year in June, up from -0.1% in May; it was lifted chiefly by the gradual recovery in oil and other global commodity prices. Energy prices fell 6.5% in June, up from a 8.4% fall in May, and we think the recovery will accelerate in coming months.
We're expecting a 180K increase in today's May headline payroll number, a bit below the underlying trend--200K or so--for the second straight month.
A rebound in quarter-on-quarter growth in households' spending in Q2, following the slowdown to just 0.2% in Q1, looks less likely following April's money data.
We have few doubts that labor demand remained strong in January, but the chance of a repeat of December's 312K payroll gain is slim.
Yesterday's first estimate of full-year 2016 GDP in Mexico indicates that growth gathered momentum over the second half of last year. But risks are now tilted to the downside, following the U.S. election. GDP rose 0.6% quarter-on-quarter in Q4, after a 1.0% increase in Q3. Growth was much slower in the firs t half, as shown in our char t below.
Chile's central bank left its policy rate on hold last Friday at 3.0%, in line with market expectations, amid easing inflationary pressures and a struggling economy.
Friday's economic data added to the evidence of a Q1 rebound in EZ consumption growth.
The Fed shifted its stance significantly in June, so we're expecting only trivial changes in today's statement.
Inflation in the euro area edged higher in November, but our prediction of a rebound in the core proved to be wrong. Headline inflation increased to 1.5% in November, from 1.4% in October.
We're expecting the FOMC to vote unanimously not raise rates today, but we do expect a modestly hawkish tilt in the statement. Specifically, we're expecting an acknowledgment of the upturn in business investment reported in the Q4 GDP data, and of the increase in market-based measures of inflation expectations, given that 10-year TIPS breakevens are now above 2% for the first time since September 2014.
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.
Friday's industrial production data in the core EZ economies, for December, were startlingly poor. In Germany, industrial production plunged by 3.5% month-to-month, comfortably reversing the revised 1.2% rise in November.
Fed Chair Yellen today needs to strike a balance between addressing investors' concerns over the state of the stock market and the risks posed by slower growth in Asia, and the tightening domestic labor market.
China's PPI inflation rose again in June, to 4.7%, from 4.1% in May.
Momentum in French manufacturing eased slightly in November, but the setback was modest. Industrial production dipped 0.5% month-to-month, only partially reversing the revised 1.7% jump in October.
Whatever you might think about the state of the U.S. economy, it is not as volatile as implied by the past few months' payroll numbers. Assuming steady productivity growth in line with the recent trend, the payroll data suggest the economy swung from bust to boom in one month, with not even a pause for breath.
China's trade surplus has been trending down in the last two years.
Collapsing oil prices add fresh deflationary pressure on China.
The Fed announced no significant policy changes yesterday, but the FOMC reinforced its commitment to maintain "smooth market functioning", by promising to keep its Treasury and mortgage purchases "at least at the current pace".
The resilience and adaptability that the Chilean economy has shown over previous cycles has been tested repeatedly over the last year. Uncertainty on the political front, falling metal prices, and growing concerns about growth in China have been the key factors behind expectations of slowing GDP growth.
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.
China's November money and credit data were a little less grim, with only M2 growth slipping, due to unfavourable base effects.
We see clear upside risk to the inflation data due before the FOMC announcement, from three main sources.
October industrial production data in France surprised to the upside yesterday, with headline output rising 0.5% month-to-month, well above the consensus estimate and our own forecast for a monthly fall. Production was lifted by a 5.1% month-to-month jump in energy output, due to unusually cold weather, offsetting a 0.5% decline in manufacturing output, the fifth drop in the past six months.
First things first: Payroll growth likely will be sustained at or close to November's pace.
Yesterday's Sentix investor sentiment survey provided the first glimpse of conditions on the ground in the EZ economy in the wake of the coronavirus scare.
The clear threat to demand posed by the coronavirus and China's efforts at containment have sent a shock wave through commodities markets.
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.
Today brings the April PPI data, which likely will show core inflation creeping higher, with upward pressure in both good and services. The upside risk in the goods component is clear enough, as our first chart shows.
October's consumer prices report, released on Wednesday, likely will show that CPI inflation has continued to drift further below the 2% target
Friday's data force us to walk back our recession call for Germany. The seasonally adjusted trade surplus rose in September, to €19.2B from €18.7B in August, lifted by a 1.5% month-to-month jump in exports, and the previous months' numbers were revised up significantly.
Yesterday's French industrial production data were worse than we expected. Output slipped 1.1% month-to-month in September, pushing the year-over-year rate down to -1.1% from a revised +0.4% in August. Mean-reversion was a big driver of the poor headline, given the upwardly-revised 2.4% jump in August.
The latest GDP data continue to show that the economy is holding up well, despite the Brexit saga.
The latest CPI data in Brazil confirm that inflationary pressures eased considerably last month. Inflation fell to 8.5% year-over-year in September, from 9.0% in August, as a result of both lower market- set and regulated inflation.
Today's JOLTS survey covers August, which seems like a long time ago. But the report is worth your attention nonetheless.
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.
We're pretty sure our forecast of a levelling-off in capital spending in the oil sector will prove correct. Unless you think the U.S. oil business is going to disappear, capex has fallen so far already that it must now be approaching the incompressible minimum required for replacement parts and equipment needed to keep production going.
The undershoot in the April core CPI wasn't a huge surprise to us; the downside risk we set out in yesterday's Monitor duly materialized, with used car prices dropping by a hefty 1.6% month-to-month, subtracting 0.05% from the core index.
The re-emergence of Chinese PPI inflation in 2016 was instrumental in stabilising equities after the 2015 bubble burst.
Economic conditions in Brazil are deteriorating rapidly.
The MPC's pause for breath last week disappointed a majority of investors, who thought that it would at least tweak aspects of the support programmes put in place in March.
Hideous though the official April payroll numbers were, the chances are that they'll be revised down.
Last week finished as it started, with more depressing economic numbers in the Eurozone, this time from manufacturing in the core economies.
Manufacturing in France remained on the front foot at the start of Q4.
The medium-term trend in the volume of mortgage applications turned up in early 2015, but progress has not been smooth. The trend in the MBA's purchase applications index has risen by about 40% from its late 2014 low, but the increase has been characterized by short bursts of rapid gains followed by periods of stability.
Payroll growth has slowed, no matter how you slice and dice the numbers.
We don't know how Europe will look on Monday. If European officials are to be believed, Greece will either have agreed to bail-out terms to keep it inside the Eurozone, or it will be on its way out. "Deadlines" have come and gone for Greece, but this time really is different, because the banks are bust without further support from the ECB, and that will not be forthcoming without a bail-out deal.
Yesterday's third and detailed EZ GDP data confirmed the economy hit the wall in Q1.
This week's data have offered further clear hard evidence of the Covid-19 shock to the Mexican economy, supporting our base case of further interest rate cuts in the coming monetary policy meetings.
The government's decision to shelve plans to reopen primary schools fully later this month will ensure that GDP remains greatly below its precoronavirus level throughout the summer months.
Private consumption in Japan will take time to recover, even if some semblance of normality returns from this month.
We were happy to see initial jobless claims fall to a 15-week low of 1,314K yesterday, but the labor market is still in a terrible state.
This week real data in Brazil supported the idea that the worst of the recession is likely over, but a V-shaped rebound is not in the cards.
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.
Yesterday's industrial production report in Germany was much better than implied by the poor new orders data--see here--released earlier this week.
The latest batch of FOMC speakers yesterday, together with the December minutes--participants said "the committee could afford to be patient about further policy firming"--offered nothing to challenge the idea, now firmly embedded in markets, that the next rate hike will come no sooner than June, if it comes at all.
Japan's wage growth surprised us with a jump to 2.0% year-over-year in December, up from 1.5% in November.
Our base case remains a 10bp cut in the deposit rate, to -0.5%, in September.
Inflation pressures are gradually easing in Mexico, opening the door for rate cuts as early as next month. The June CPI report, released yesterday, showed that prices rose 0.1% month-to-month unadjusted in June, in line with market expectations.
We would be surprised, but not astonished, if the Fed were to announce a shift to explicit yield curve control at today's meeting.
China's trade balance flipped to an unadjusted deficit of $7.1B in the first two months of the year, from a $47.2B surplus in December.
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.
Normal service appears to have resumed in August, with payrolls rising by 201K, very close to the 196K average over the previous year.
Nowhere is the gap between sentiment and activity wider than in the NFIB survey of small businesses. The economic expectations component leaped by an astonishing 57 points between October and December, but the capex intentions index rose by only two points over the same period, and it has since slipped back. In February, the capex intentions index stood at 26, compared to an average of 27.3 in the three months to October.
Korea's labour market took an overdue breather in March after an extremely volatile start to the year.
Our base case forecast for today's July core CPI is that the remarkable and unexpected run of weak numbers, shown in our first chart, is set to come to an end, with a reversion to the prior 0.2% trend.
Inflation pressures in Brazil are now well- contained, with the headline rate falling to a decade low in July. We think inflation is now close to bottoming out, but the current benign rate strengthens our base case forecast for a 100bp rate cut at the next policy meeting, in September.
Lacklustre economic data and persistent no deal Brexit risk mean that the MPC won't rock the boat at this week's meeting.
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.
April's Retail Sales Monitor from the British Chambers of Commerce, released yesterday, provided a powerful signal that households' spending rebounded in April, following a terrible Q1.
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.
Note: This updates our initial post-election thoughts, adding more detail to the fiscal policy discussion. Apologies for the density of the text, but there's a lot to say. Our core conclusions have not changed since the election result emerged. The biggest single economic policy change, by far, will be on the fiscal front.
We wrote last month about how the Caixin services PMI appeared to be missing the deterioration in several key services subsectors.
Data yesterday suggest that EZ investor sentiment is on track for a modest recovery in Q3.
Mexican economic growth was subdued during the first half of the year, and we expect it to remain weak over the coming months. The economy has been held back largely by external headwinds, especially low oil prices and disruptions to activity in the US, its main trading partner.
Mexico's industrial recession deepened in April, though some leading indicators suggest that the worst is over as the economy gradually reopens. But downside risks have increased dramatically in recent weeks, as the pandemic seems to be gathering renewed strength.
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.
The number of Covid-19 cases is increasing at a faster rate, though 89% of the new cases reported Saturday were in China, South Korea, Italy and Iran.
Japan's labour data threw another January curve ball this year--last year it was wages--with a change in the standards for job openings.
Inflation pressures are slowly, but surely, rising in the Eurozone. Advance data indicate that inflation in Germany rose to 0.7% year-over-year in May, up from 0.5% in April. Reduced drag from the non-core components is the main driver, with energy prices rebounding, and food prices now rising steadily at 1.4% year-over-year.
We'll cover Friday's barrage of EZ economic data later in this Monitor, but first things first. We regret to inform readers that the ECB is behind the curve. Last week, Ms. Lagarde downplayed the idea that the central bank will respond to the shock from the Covid-19 outbreak.
Brazil's economic data last week were appalling. The IPCA-15 price index rose 1.3% month-to-month, the fastest pace in 12 years, pushing the annual rate to 7.4% in mid-February from 6.7% in mid-January,well above the 6.5% upper bound of the BCB's target range.
The French presidential election campaign remains chaotic. Republican candidate François Fillon had to defend himself again yesterday as investigations into his potential misuse of public funds deepened. Mr. Fillon and his wife have now been summoned to court to explain themselves. Markets expected Mr. Fillon to resign as the Republican front-runner. Instead, he used his unscheduled media address to defiantly declare that he is staying in the race.
The surge in Covid-19 case and hospitalizations-- and, in due course, deaths--in some southern states since they began to reopen probably is not a sign of what is likely to happen as the populous states in the Northeast and Midwest reopen too.
Colombian policymakers on Friday cut the reference rate by 50bp, for a third straight month, to 2.75%.
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.
Japan's Tankan survey for Q2 was unsurprisingly grim, given the devastation caused by the near- global lockdown in the first half of the quarter, and the nationwide state of emergency that enveloped April and May.
Yesterday's economic data in the Eurozone were soft.
ADP's measure of May private payrolls undershot the official estimate by 5.6 million, surprising everyone after it nailed the April catastrophe.
The recovery in the industrial sector from Covid-19 finally commenced in earnest in June, after May's stalled start.
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.
Most of the indicators we follow point to another very strong payroll report today; we look for a 260K gain, matching May's performance. The best single leading indicator, the NFIB small business hiring intentions number, points to a massive 320K leap in private payrolls, as our first chart shows.
Earlier this week the New York Times bleakly suggested--see here--that people in Italy are too depressed to care about this weekend's parliamentary elections.
Eurozone inflation pressures snapped back in April. Friday's advance report showed that headline inflation rose to 1.9% year-over-year, from 1.5% in March, lifted by a jump in the cor e rate to 1.2% from 0.7% the month before.
Whatever you think is the underlying tr end in payroll growth, you probably should expect a modest undershoot in today's report, thanks to the persistent tendency for the first estimate of September payrolls to undershoot and then be revised higher. The good news is that the initial September error tends not to be as big as in August--the median revision from the first estimate to the third over the past six years has been 49K, compared to 66K--and it has declined recently. Over the past three years, September revisions have ranged from only 18K to 27K. Still, we can't ignore six straight years of initial undershoots.
The dreadful September ISM manufacturing survey reinforces our view that the sector will be in recession for the foreseeable future, and that both business capex and exports are on the verge of a serious downturn.
Banxico left its benchmark interest rate on hold at 7.0% at last Thursday's policy meeting.
The recent sell-off in Treasuries has not yet reached significant proportions.
The industrial sector in the EZ slowed further at the end of Q3.
Friday's inflation data in the Eurozone added a dovish twist to the story ahead of the key ECB meeting later this month.
Brazil's industrial production rose 0.8% month- to-month in August, well above our call, and the consensus, for a trivial increase.
Don't bet the farm on today's October payroll numbers, which will be hopelessly--and unpredictably-- compromised by the impact of hurricanes Florence and Michael.
The Fed will do nothing and say little that's new after its meeting today. The data on economic activity have been mixed since the March meeting, when rates were hiked and the economic forecasts were upgraded, largely as a result of the fiscal stimulus.
March auto sales were much weaker than expected, falling by 5.5% month-to-month to a 25-month low, 16.5M. The average for the previous six months was 17.8M. The sudden drop in March likely was driven in large part by the huge snowstorm which tracked across the Northeast in the middle week of the month, so we think a decent rebound in April is a good bet.
We expect the BoK to hike this month, believing that it's necessary to curtail household debt growth now, in order to prevent a sharper economic slowdown as the Fed hiking cycle continues, China slows, and trade risks unfold.
The Fed yesterday acknowledged clearly the new economic information of recent months, namely, that first quarter GDP growth was "solid", with Chair Powell noting that it was stronger than most forecasters expected.
Brazil's central bank kept the Selic policy rate at 6.50% this week, as markets broadly expected.
China's Caixin manufacturing PMI was unchanged at 51.0 in October, continuing the sideways trend this year.
Mexico's election results are not available as we go to press, but we're expecting a comfortable win for the left-wing populist candidate, AMLO.
The economy slowed less than we expected in 2017.
The Chilean economy was emerging in early Q1 from the self-inflicted shock from the social unrest in October, but the upturn was interrupted in early- March by the restrictive measures introduced to contain Covid-19.
The probability of a rate hike on June 14, as implied by the fed funds future, has dropped to 90%, from a peak of 99% on May 5.
Fed Chair Powell's comment on Sunday's "60 Minutes", that a recovery in the economy "may take a while... it could stretch through the end of next year" did not prevent a 3% jump in the S&P 500 yesterday.
At the October FOMC meeting, policymakers softened their view on the threat posed by the summer's market turmoil and the slowdown in China, dropping September's stark warning that "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term." Instead, the October statement merely said that the committee is "monitoring global economic and financial developments."
Bond yields in Italy remain elevated, but volatility has declined recently; two-year yields have halved to 0.7% and 10-year yields have dipped below 3%.
Italian bond yields have remained elevated this week, following the release of the government's detailed draft budget for 2019.
Political risk in Brazil has increased substantially, following reports that President Temer was taped in an alleged cover-up scheme involving the jailed former Speaker of the House. If the tapes are verified, calls for Mr. Temer to face impeachment will mount.
We need to take a closer look at the chance of a sustained rise in the labor participation rate, which is perhaps the single biggest risk to the idea that 2018 will be a good year for the stock market, with limited downside for Treasuries.
In the wake of last week's rate increase, the fed funds future puts the chance of another rise in September at just 16%. After hikes in December, March and June, we think the Fed is trying to tell us something about their intention to keep going; this is not 2015 or 2016, when the Fed happily accepted any excuse not to do what it had said it would do.
The Spanish economy remains the star performer among the majors in the Eurozone.
Today's construction data in the Eurozone will inject a dose of optimism amid the series of poor economic reports at the start of Q2.
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.
Chancellor Sunak announced further emergency support measures for the economy on Tuesday and pledged to do more soon.
Last week's unprecedented surge in initial jobless claims, to 3,283K from 282K, prompted a New York Times front page for the ages; if you haven't seen it, click here.
The bulk of China's PMIs were published over the weekend and yesterday, leaving only the Caixin services PMI on Wednesday.
We struggle to find much wrong with the near-term outlook for Eurozone manufacturing. The headline PMI fell marginally to 59.6 in January, from 60.6 in December, but it continues to signal robust growth at the start of the year.
Holiday effects are tedious and you are going to hear us talking about them until the March data come through.
The case for expecting a robust January jobs number is strong, but it is not without risks.
Data on EZ consumption were soft while we were enjoying our Christmas break. The advance EC consumer confidence index slipped to a three-year low of -8.1 in December, from -7.2 in November, breaking its recent tight range.
China's official PMIs paint a picture of robust momentum going into 2018 but we find this difficult to reconcile with the other data.
China's official manufacturing PMI was unchanged at 50.2 in December, marking a weak end to the year. But it could have been worse; we had been worried that the return to above-50 territory in November had been boosted by temporary factors. December's print allays some of those fears.
Brazil's December industrial production and labour reports, released this week, confirmed that the recovery remained solidly on track at the end of last year.
Don't fret over the slowdown in growth in the fourth quarter. The quarterly GDP data are volatile even after several rounds of revisions, and the advance numbers are full of assumptions about missing trade, inventory and capex data, which often turn out to be wrong.
The FOMC did nothing yesterday and said nothing significantly different from its June statement, as was universally expected.
Inflation in the Eurozone stumbled at the end of Q3.
We're reasonably happy with the idea that business sentiment is stabilizing, albeit at a low level, but that does not mean that all the downside risk to economic growth is over.
With campaigning for the general election intensifying last week, it was unsurprising that October's money and credit release from the Bank of England received virtually no media or market attention.
LatAm assets and currencies had a bad November, due to global trade war concerns, the USD rebound and domestic factors.
The key detail in Friday's barrage of economic data was the above-consensus increase in EZ inflation.
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.
As a general rule, the best forecast of ADP payrolls in any given month is the official estimate for private payrolls in the previous month. This partly reflects the simple observation that payroll trends, once established, tend to persist, but it also is a consequence of ADP's methodology. The ADP number is generated from a model which combines both data collected from firms which use ADP for payroll processing, and lagged official data. The latter appear to be more important in determining in the month-to-month swings in the ADP number. ADP does not hide the incorporation of lagged official data in its model--you can read about it in the technical guide to the report--but neither does it shout it from the rooftops.
Expectations for a March rate hike have dipped since Fed Vice-Chair Clarida's CNBC interview last Friday.
The French economy has suffered from weakness in manufacturing this year, alongside the other major EZ economies.
The Eurozone's external surplus recovered a bit of ground mid-way through the third quarter.
One of the possible explanations for the slowdown in payroll in growth in recent months is that the pool of labor has shrunk to the point where employers can't find the people they want to hire. That's certainly one interpretation of our first chart, which shows that the NFIB survey's measure of jobs-hard-to-fill has risen to near-record levels even as payroll growth has slowed.
Advance April consumer survey data will likely confirm that households remain the standout driver of the cyclical recovery in the euro area. We think the headline EC consumer sentiment index rose to -1.0 in April from -3.7 in March.
Brazil's monetary policy committee, the Copom, cut the Selic rate by 25bp to 14.0% in a unanimous decision, without bias, on Wednesday. This marks the start of the first easing cycle since 2012, and it arrives after 15 months with rates held at 14.25%.
The FOMC kept policy unchanged at April's meeting-- rates stayed at zero, and all the market valves are wide open, as needed--but policymakers spent considerable time pondering what might happen over the next few months, and how policy could evolve.
Yesterday's final CPI report for April confirmed that the Eurozone is edging towards deflation.
As we write, markets see a 70% chance that the MPC will cut Bank Rate on January 30.
Just as we turned more positive on the labor market, following three straight months of payroll gains outstripping the message from an array of surveys, the Labor Department's JOLTS report shows that the number of job openings plunged in November.
The U.K.'s property obsession has been immune to Covid-19, so far.
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.
February's consumer price figures give the MPC reason to doubt the case for raising interest rates again as soon as May.
Global current account imbalances are back on the agenda. In the U.S., economic policies threaten to blow out the twin deficit, while external surpluses in the euro area and Asia are rising.
Consumption and investment spending by state and local government accounts for just over 10% of the U.S. economy, making it more important than exports or consumers' spending on durable goods, and roughly equal to all business investment in equipment and intellectual property.
Last week's attacks in Barcelona--one of Spain's most popular tourist spots--struck at the heart of one of the economy's main growth engines.
This is the final Monitor before we hit the beach for two weeks, so want to highlight some of the key data and event risks while we're out. First, we're expecting little more from the FOMC statement than an acknowledgment that the labor market data improved in June. After the May jobs report, the FOMC remarked that "...the pace of improvement in the labor market has slowed".
We have to pinch ourselves when looking at economic data in Spain at the moment. Real GDP rose a dizzying 0.9% quarter-on-quarter in Q1, driven by solid gains of 0.7% and 1.1% in consumer's spending and investment respectively. Retail sales and industrial production data indicate GDP growth remained strong in Q2, even if survey data lost some momentum towards the end of the quarter. We will be looking for signs of further moderation in Q3, but surging private deposit growth indicate the cyclical recovery will continue.
Today brings only the May existing home sales report, previewed below, so we have an opportunity to look over the latest near-real-time data on economic activity. The picture is mixed.
We advise strongly against concluding from the above-consensus rebound in retail sales in May that the economy is embarking on a healthy, V-shaped recovery, from Covid-19.
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.
The most striking feature of the Fed's new forecasts is the projected overshoot in core PCE inflation at end-2019 and end-2020, which fits our definition of "persistent".
Recent economic weakness in Brazil, particularly in the labor market, has strengthened our view that the central bank is close to the end of its painful, but necessary, tightening cycle. We expect the BCB to increase its policy rate by 50bp to 14.25% at next week's monetary policy meeting, and then leave the rate on hold for the foreseeable future.
We remain very bullish on the housing market, given sustained 11-year highs in applications for new mortgages to finance house purchase.
While we were out, the key economic news in the Eurozone was mostly positive. The main upside surprise came from the advance Q2 German GDP report, which showed that real GDP rose 0.4% quarter-on-quarter, slowing from the 0.7% jump in the first quarter.
Economic growth in France has been the key downside surprise in the Eurozone this year.
Sentiment in the French business sector ended this year on a high. The headline manufacturing index fell slightly to 112 in December, from an upwardly-revised 113 in November, but the aggregate sentiment gauge edged higher to a new cycle high of 112.
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.
Complacency and wishful thinking seem to be creeping back into the government's approach to containing Covid-19.
The Prime Minister has revealed that her Plan B for Brexit is to get Eurosceptics within the Tory party on side in an attempt to show the E.U. that a deal could be done if the backstop for Northern Ireland was amended. Her plan is highly likely to fail, again.
Data released on Friday confirmed that Colombian activity lost momentum in Q4, following an impressive performance in late Q2 and Q3. Retail sales rose 4.4% in November, down from 7.4% in October and 8.3% in Q3.
December's labour market report, released today, won't be a game-changer for the near-term outlook for interest rates; January data will be released before the MPC meets in March, and February data will be available at its key meeting in May.
We have been hearing a good deal recently about the risk that the plunge in headline inflation will feed back into the labor market, keeping the pace of wage gains lower than they would otherwise have been and, therefore, slowing the pace of Fed tightening.
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.
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.
After three straight lower-than-expected jobless claims numbers, we have to consider, at least, the idea that maybe the trend is falling again. This would be a remarkable development, given that claims already are at their lowest level ever, when adjusted for population growth, and at their lowest absolute level since the early 1970s.
The Monetary Policy Board of the Bank of Korea voted unanimously last week to keep the benchmark base rate unchanged, at 0.50%.
June's 0.5% month-to-month fall in retail sales volumes does little to change the picture of recent strength.
Argentina's inflation ended 2019 badly, and it is still too early to bet on a protracted downtrend, even after the renewed economic slowdown.
Expectations that the MPC will cut Bank Rate at its meeting on January 30 received a further shot in the arm at the end of last week, when December's retail sales figures were released.
Inflation in the Eurozone eased at the start of Q3.
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.
The run of weak retail sales figures continued yesterday, with the release of November's official data.
Wednesday's State Council meeting implies that the authorities are starting to take more serious coordinated fiscal measures to counter the virus threat to the labour market and to banks.
Signs of a slowdown in the labour market data are conspicuously absent.
Colombia's oil industry--one of the key drivers of the country's economic growth over the last decade--has been stumbling over recent months, raising concerns about the country's growth prospects. But the recent weakness of the mining sector is in stark contrast with robust internal demand and solid domestic production.
Just over four weeks after Mike Pence's spectacularly badly-timed Wall Street Journal Op-ed, entitled "There Isn't a Coronavirus Second Wave", the U.S. recorded 465K new cases in the week ended Saturday, easily the worst week of the pandemic to date.
The initial pace of the Fed's balance sheet run-off, which we expect to start in October, will be very low. At first, the balance sheet will shrink by only $10B per month, split between $6B Treasuries and $4B mortgages.
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.
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 Eurozone's external surplus is on track for a record-breaking year in 2016. Data yesterday showed that the current account surplus rose to €28.4B in October, from €27.7B in September. The trade surplus in goods fell, but this drag was offset by a higher services and income surplus, and a lower current transfers deficit.
Yesterday's report on October private spending in Mexico was downbeat, suggesting that consumption started the fourth quarter on a weak footing.
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".
Today's advance EZ PMIs will be watched more closely than usual.
The passage of the House tax cut bill does not guarantee that the Senate will follow suit with its own bill, still less that both chambers will then be able to agree on a single bill which can then b e signed into law. As
This week economic data highlighted the severity of Brazil's economic recession and the huge challenges it will face next year to return to growth. The recession further deepened in the third quarter with the economic activity index--a monthly proxy for GDP--surprising, once again, to the downside in September. The index fell 0.5% month-to-month, pushing the year-over-year rate down to 6.2%, the steepest fall on record. The series is very volatile on a monthly basis, but the underlying trend remains grim.
For some time, the Fed has been locked in a loop of endless inaction. Every time the economic data improve and the Fed signals it is preparing to raise rates, either markets--both domestic and global-- react badly, and/or a patch of less good data appear. The nervous, cautious Yellen Fed responds by dialling back the talk of tightening, and markets relax again, until the next time.
The tone of Fed Chair Powell's opening comments at the press conference yesterday was much more dovish than the statement, which did little more than most analysts expected.
The Fed's announcement, at 11.30pm Wednesday, that it will establish a Money Market Mutual Fund Liquidity Facility--MMLF--to support prime money market funds, is another step to limit the emerging credit crunch triggered by the virus.
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 hope never to see another labour market report as bad as yesterday's, though the omens aren't good.
Hard data released in Argentina over the last month showed that the economy was struggling in early Q1, even before the Covid-19 hit.
China's official GDP data, published on Monday, showed year-over-year growth edging down to 6.7% in Q2, from 6.8% in Q1.
The odds of a hike this month have increased in recent days, though the chance probably is not as high as the 82% implied by the fed funds future. The arguments against a March hike are that GDP growth seems likely to be very sluggish in Q1, following a sub-2% Q4, and that a hike this month would be seen as a political act.
Economic activity in Mexico during the past few months has been improving gradually, as external and domestic threats appear to have diminished.
The Brexit-related slump in corporate confidence finally has taken its toll on hiring.
Consensus expectations for August's labour market data, released today, look well grounded.
Last week's policy announcement by the ECB and Mr. Draghi's plea to EU politicians to deliver a fiscal boost, indicate that we're living in extraordinary economic times.
The absence of an internationally agreed set of guidelines for easing lockdowns means that such decisions ultimately are political in nature.
Economic data are telling a story of a strengthening recovery, but downbeat investor sentiment points to a more difficult environment. The headline ZEW expectations index fell to a ten-month low of 12.1 in September, from 25.0 in August. This takes sentiment back to levels not seen before QE was announced, highlighting the increasing worry that deflation risks and low growth in China will derail the recovery. We don't agree, but we can't be sure the ECB thinks the same, and risks of additional stimulus this year have increased.
Tariffs are a tax on imported goods, and higher taxes depress growth, other things equal.
Yesterday's final inflation data in France for September were misleadingly soft.
Yesterday's data in the EZ provided a little more evidence on what happened in Q1.
Official industrial production growth in China plunged to 5.4% year-over-year in April, from 8.5% in March.
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 headline retail sales numbers for October looked good, but the details were less comforting.
Evidence of accelerating economic activity in Colombia continues to mount, in stark contrast with its regional peers and DM economies.
China's official real GDP growth likely slowed to 6.0% year-over-year in Q3, from 6.2% in Q2.
Chinese monetary policymakers can rely on several different instruments to affect market and broad liquidity, ranging from various forms of open market operations to interest rates to FX intervention. The tool kit is constantly changing as the PBoC refines its operations.
The November industrial production numbers will be dominated by the rebound in auto production following the end of the GM strike.
Yesterday's economic activity data from Peru signalled that the relatively firm business cycle continues. The monthly GDP index accelerated to 3.6% year-over-year in November, rising from 2.1% in October, but marginally below the 4.4% on average in Q3. Growth continued to be driven by mining output, including oil and gas, which rose 15% year-over- year. The opening of several new mines explains the upturn, and we expect the sector to remain key for the Peruvian economy this year.
To avoid rocking the 2020 boat, the Phase One trade deal needed to be sufficiently vague, so that neither side, and particularly Mr. Trump, would have much cause to kick up a fuss around missed targets.
At the end of last year, U.S. homebuilders were more optimistic than at any time in the previous 18 years, according to the monthly NAHB survey.
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.
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.
Fed Chair Powell's semi-annual Monetary Policy Testimony today will likely re-affirm that policymakers still think "gradual" rate hikes are appropriate and that the risks to the economy remain "roughly balanced".
Brazil's consumer resilience in Q3 continued to November, but retail sales undershot market expectations, suggesting that the sector is not yet accelerating and that downside risks remain.
EZ households' demand for new cars was off to a strong start in 2017. Car registrations in the euro area jumped 10.9% year-over-year in January, accelerating from a 2.1% rise in December. We have to discount the headline level of sales by about a fifth to account for dealers' own registrations. Even with this provision, though, the January report was solid. Growth rebounded in France and Germany, and a 27.1% surge in Dutch car registrations also lifted the headline. We think car registrations will rise about 1.5% quarter-onquarter in Q1, rebounding from a weak Q4. But this does not change the story of downside risks to private spending.
On the face of it, December's flash Markit/CIPS PMIs warrant the MPC cutting Bank Rate at its meeting on Thursday.
Incoming activity data from Colombia over the past quarter have been surprisingly strong, despite many domestic and external threats.
Friday' second Q4 GDP estimate revealed that the EZ economy barely grew at the end of 2019. The report confirmed that GDP rose by 0.1% quarter-on-quarter in Q4, slowing from a 0.3% rise in Q3, but the headline only narrowly avoided downward revision to zero, at just 0.058%
CPI inflation surprises look set to trigger larger- than-usual market reactions over the coming months, given that the MPC emphasised last month that it wants to see domestically-generated inflation rebound swiftly, after falling suddenly late last year, in order to justify keeping Bank Rate on hold.
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.
Over the past 30 years China's role in LatAm and the global economy has increased sharply. Its share of world trade has surged, and its exports have gained significant market share in LatAm.
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.
Inflation pressures in France eased in February, in contrast to the story in the rest of the EZ. Yesterday's report confirmed the initial estimate that inflation fell to 1.2% year-over-year in February, from 1.3% in January. The headline was hit by a crash in the core rate to a two-year low of 0.2%, from 0.7% in January.
China's main activity data for October disappointed across the board, strengthening our conviction that the PBoC probably isn't quite done with easing this year.
The two biggest economies in the region have taken divergent paths in recent months, with the economic recovery strengthening in Brazil, but slowing sharply in Mexico.
Yesterday's second Q3 GDP estimate confirmed that the EZ economy expanded by 0.2% quarter-on- quarter in Q3, the same pace as in Q2, leaving the year-over-year rate unchanged at 1.2%.
The Chinese activity data published yesterday were a mixed bag, with headline retail sales and production weakening, while FAI growth was stable. We compile our own indices for all three, to crosscheck the official versions.
Yesterday's second estimate of GDP confirmed that Eurozone growth slowed significantly in Q3.
CPI inflation held steady at 3.0% in October, undershooting our forecast and the consensus by 0.1 percentage point and the MPC's forecast by 0.2pp.
October's 0.1% month-to-month fall in retail sales volumes was disappointing, following substantial improvements in the CBI, BRC and BDO survey measures.
The consequences of the collapse in oil prices continue to reverberate through the sector. The number of rigs in operation is still falling rapidly, but the rate of decline is slowing. According to data from Baker Hughes, Inc., an average of 23 rigs per week have ceased operation over the past four weeks, the slowest decline since December.
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.
Taken at face value, six of the eight opinion polls conducted over the seven days indicate that the U.K. will vote for Brexit on June 23. Our daily updated Chart of the Week, on page 3, shows the current state of play.
The Fed will hike by 25 basis points today, citing the tightening labor market as the key reason to press ahead with the process of policy normalization. We think the case for adding an extra dot to the plot for both this year and next is powerful.
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.
Yesterday's data provided further evidence of the EZ economy's response to the Covid-19 shock, though we recommend that investors take the numbers with a pinch of salt. In Germany, the final CPI report for April showed that headline inflation slipped to 0.9% year-over-year, from 1.4% in March, trivially above the first estimate, 0.8%.
Mexican policymakers stuck to the script yesterday and voted unanimously to cut the main rate by 50bp to 5.50%, its lowest level in more than three years.
We expect September's consumer prices report, released on Wednesday, to show that CPI inflation held steady at 1.7%, below the 1.8% consensus.
China's September imports missed expectations, but commentators and markets tend to focus on the year-over-year numbers.
Financial markets and economic data don't always go hand-in-hand, but it is rare to find the divergence presently on display in Italy.
Brazil's consumer sluggishness in Q3 and early Q4 eased in November.
The weekly initial jobless claims numbers have been a useful proxy for the real-time performance of the economy since Covid-19 struck.
Today's ECB meeting will be a snoozer.
The House passage of a stimulus bill last Friday, seeking to ameliorate some of the damage done by the coronavirus outbreak, will not be nearly enough.
EZ investors are still trying to come to grips with last week's terrifying price action, culminating in the 12.5% crash in equities on Thursday
The BoJ is likely to be thankful next week for a relatively benign environment in which to conduct its monetary policy meeting.
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.
Yesterday's ECB bank lending survey suggests that credit conditions remain favourable for the EZ economy. Credit standards eased slightly for business and mortgage lending and were unchanged for consumer credit.
China's September trade numbers show that, far from reducing the surplus with the U.S., the trade wars so far have pushed it up to a new record.
For all the excitement generated by yesterday's raft of appalling economic reports, the weekly jobless claims numbers still offer the best, and almost real-time, guide to the big picture.
"Is EZ fiscal stimulus on the way?" is a question that we receive a lot these days.
The new Argentinian president, Alberto Fernández, will have to make a quick start on the titanic task of cleaning up the economic and social mess left by his predecessor, Mauricio Macri.
Markets greatly cheered the Conservatives' landslide victory on Friday, but remained cautious on the potential for the MPC to return to the tightening cycle it started in 2017.
Headline retail sales in June were just 1% below their January peak, and about 3% below the level they would have reached if the pre-Covid trend had continued.
The MPC surprised markets, and ourselves, yesterday with the escalation of its hawkish rhetoric in the minutes of its policy meeting.
Most of the Andean economies have been hit by the turmoil roiling the global economy in the past few quarters. But modest recovery in commodity prices in Q3, and relatively solid domestic fundamentals helped them to avoid a protracted slowdown in Q2 and most of Q3.
Friday's second Q1 GDP estimate confirmed that lockdowns to halt the spread of Covid-19 hurt the EZ economy in Q1. Real GDP plunged by 3.8% quarter-on- quarter, following a 0.1% rise in Q4, in line with the first estimate.
Mexico's central bank, Banxico, last night capitulated again, reacting to the depreciation of the MXN by increasing interest rates by 50bp--for the fourth time this year--to 5.25%.
Rapidly increasing food inflation is creating all sorts of dilemmas for policymakers in Asia's giants.
PM Johnson has conceded considerable ground over the terms of Brexit for Northern Ireland in order to get a deal over the line in time for MPs to vote on it on Saturday, before the Benn Act requires him to seek an extension.
The declines in headline housing starts and building permits in September don't matter; both were driven by corrections in the volatile multi-family sector.
In recent client "meetings" we have been emphasizing the idea that a sustained recovery in the economy over the summer depends on the solidity of a three-legged stool.
This week's labour market report--primarily reflecting conditions in March, though some data refer to April--will lift the veil on the initial economic damage from Covid-19, though the full horror will emerge only later.
We're braced for disappointing jobless claims numbers today.
Yesterday's final CPI data for May confirmed that the EZ economy is within touching distance of headline deflation.
The gloom which descended on the FOMC in April has lifted, mostly, and policymakers remain on track for two rate hikes this year, likely starting in September. The median fed funds forecast for the end of this year remains at 0.625%, implying a target range of 0.5-to-0.75%.
The labour market was pretty robust before the coronavirus crisis.
We expect the Fed to drop "patient" from its post-meeting statement today, paving the way for a rate hike in June, data permitting. And the data will permit, in our view, despite what seems to have been a long run of disappointing numbers, and the likelihood that inflation will fall further below the Fed's 2% informal target in the near-term.
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.
Yesterday's final CPI report in the Eurozone confirmed that headline inflation was unchanged at 1.5% in September.
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.
This year has proved to be challenging for retailers in Mexico. The combination of fiscal reform, the economic slowdown over the first half of the year, and the collapse of consumer sentiment took a significant toll in the sector.
The next couple of rounds of business surveys will capture firms' responses to the Phase One trade deal agreed last week, though the news came too late to make much, if any, difference to the December Philly Fed report, which will be released today.
The consensus for retail sales volumes to rise by a mere 0.3% month-to-month in November, after falling by 0.4% in September and 0.5% in Oc tober, looks too downbeat.
Colombia's GDP report, released last week, confirmed that it was the fastest growing economy in LatAm and everything suggests that it likely will lead the ranking again this year.
Incoming data continue to highlight the severe hit from the pandemic on the real economies of the region, but some surveys and leading indicators are already pointing to a gradual upturn from June onwards.
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 PBoC reduced its 14-day reverse repo by 5bp to 2.65% in a routine operation yesterday.
CPI inflation held steady at 1.5% in November, marking the fourth consecutive below-target print, though it was a tenth above both the MPC's forecast and the consensus.
We'd be very surprised to see anything other than a 25bp rate cut from the Fed today, alongside a repeat of the key language from July, namely, that the Committee "... will act as appropriate to sustain the expansion".
In September last year, headline CPI inflation stood at exactly zero. Today, we expect to see a 1.5% print, thanks mostly to the fading impact of falling energy prices.
The MPC took an unprecedented step last week to pave the way for an interest rate rise.
The Eurozone has a productivity problem. Between 1997 and 2007, labour productivity rose an average 1.2% year-over-year, but this rate has slowed to a crawl--a mere 0.5%--since the crisis. These data tell an important story about the peaks in EZ GDP growth over the business cycle. Before the financial crisis in 2008, cyclical peaks in Eurozone GDP growth were as high as 3%-to-4% year-over-year.
Everyone heard San Francisco Fed president Williams's suggestion Monday that central banks could raise their inflation targets in response to the sustained slow growth and lower-than-expected inflation of recent years. It's not clear, though, that markets grasped the scale of the increase he thinks might be appropriate.
An inverted curve is a widely recognised signal that a recession is around the corner, though it's worth remembering that the lags tend to be long.
Governor Kuroda has sounded increasingly dovish recently.
The ongoing weakness in DM has been a feature of the global landscape over the last year.
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.
Recent data in Argentina confirm the resilience of cyclical upturn.
Growth in new EZ car sales remained brisk last month, growth slowed in Q3. New registrations rose 9.4% year-over-year in September, marginally lower than the 9.6% increase in August. Growth in France fell most, sliding to 2.5% from 6.7% in August, but sales in Germany picked up to 9.4%, from 8.3%.
Today's economic data will add to the evidence that construction in the Eurozone slowed in the first quarter.
Trouble is brewing in the core inflation data, despite the benign-looking 0.17% increase in the June report, released Friday. If you annualize that rate indefinitely, core inflation will reach a steady state of 2.1%, so the Fed never needs to raise rates. Alas this only makes sense if you think that single monthly CPI numbers tell the whole truth, and that the fundamental forces acting on inflation are stable. Neither of these propositions is remotely true.
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 case for the MPC to hold back from implementing more stimulus was bolstered by September's consumer prices figures.
The GM strike will make itself felt in the September industrial production data, due today.
Signs that the economy has been crippled by people's response to the Covid-19 outbreak continued to emerge yesterday.
Here's something we didn't expect to write: The control measure of retail sales in May was slightly higher than in February.
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%.
Last week, the MBA's measure of the volume of applications for new mortgages to finance house purchase rose 1.7%.
The Monetary Policy Board of the Bank of Korea voted yesterday to lower its policy base rate to 1.25%, from 1.50%.
The consensus for a modest 0.5% month-to- month rise in retail sales volumes in October looks too timid; we expect today's data to show a 1% increase.
Inflation data are known to defy economists' forecasts, but it should in principle b e straightforward to predict the cyclical path of EZ core inflation. It is the longest lagging indicator in the economy, and leading indicators currently signal that core inflation pressures are rising.
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.
Fourth quarter construction activity in the Eurozone was much better than in Q3, despite a dip in December. Output fell 0.6% month-to-month in the final month of the year, pushing the year-over-year rate down to -0.4% from a revised 0.3% in November.
Banxico will meet tomorrow, and we expect Mexican policymakers to cut the main interest rate by 25bp, to 7.25%.
Colombia's December activity reports confirmed that quite strong retail sales last year were less accompanied by local production, which became only a minor driver of the economic recovery, as shown in our first chart.
Hot on the heels of yesterday's news that the NAHB index of homebuilders' sentiment and activity dropped by two points this month -- albeit from December's 18-year high -- we expect to learn today that housing starts fell last month.
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.
Data released over the weekend confirm that the Peruvian economy enjoyed a strong second quarter. The economic activity index rose 6.4% year-over-year in May, well above market expectations, and up from 3.2% in Q1.
The shortfall in nominal wage growth, relative to measures of labor market tightness, remains the single biggest mystery of this business cycle.
Brazil's December economic activity index, released last week, showed that the economy ended the year on a relatively weak footing. The IBC-Br index, a monthly proxy for GDP, fell 0.3% month- to-month, pushing down the adjusted year-over- year rate to 0.3%, from a downwardly-revised 0.7% increase in November.
The labour market remains healthy enough to persuade the MPC to keep its powder dry over the coming months.
Boeing's announcement that it will temporarily cut production of 737MAX aircraft to zero in January, from the current 42 per month pace, will depress first quarter economic growth, though not by much.
The new Argentinian president has started to clean up the mess left by his predecessor, Cristina Fernandez de Kirchner. President Mauricio Macri lifted capital controls, and let the ARS float freely yesterday. The peso tumbled about 30%, getting close to 14 ARS per USD, where it had been trading in the black market. The government also announced that it is on track to receive about USD 12-to-15B, to build up the battered foreign reserves, and to contain any overshooting. This money will come through many channels, for example, grain producers have announced that they will sell about USD400M a day over the coming weeks.
Data yesterday added further evidence of a slow recovery in Eurozone auto sales.
If clarity is the first test of written English, the FOMC failed miserably yesterday. "Considerable time" is gone, but the new formulation--"the Committee judges that it can be patient in beginning to normalize the stance of monetary policy"--was not clearly defined, though the FOMC did say it is "consistent with its previous statement".
The BoJ is likely to stay on hold this week for all its main policy settings.
Household sentiment in France continues to improve, consistent with tailwinds from low energy prices and accommodative monetary policy. INSEE's measure of consumer confidence rose to 94 in April, up from 93 in March, the highest since November 2010.
Chief Eurozone Economist Claus Vistesen on the latest data from the Eurozone
The weekly jobless claims numbers tend to be choppy around the turn of the year, and our take on the seasonal adjustments points to a clear increase in today's report, for the week ended January 11, even without the impact of the government shutdown.
The official payroll numbers seem not to be consistently affected by seasonal adjustment problems when Easter falls in March, probably because the earliest possible date for the holiday, the 23rd, comes long after the payroll data are captured. The BLS data cover the week of the 12th.
In one line: Grim, but probably overstates payroll weakness.
It's entirely possible--though impossible to prove--that the weather is responsible for the below-consensus April payroll number.
Under normal circumstances, we can predict movements in the headline NFIB index from shifts in the key labor market components, which are released a day ahead of the official employment report, and, hence, about 10 days before the full NFIB survey appears.
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 the wake of the soft-looking ADP employment report released on Wednesday, the true consensus for today's official payroll number likely is lower than the 230K reported in the Bloomberg survey. As we argued in the Monitor yesterday, though, we view ADP as a lagging indicator and we don't use it is as a forecasting tool.
Investors and market observers of a relatively bearish persuasion argued over the weekend that the details of the October employment report were less encouraging than the headline, principally because the household survey showed that all the job growth, net, was among older workers, defined as people aged 55-plus. This, they argue, suggests that most of the increased demand for labor was concentrated in low-paid service sector jobs, where older workers are concentrated, perhaps reflecting retail hiring ahead of the holidays. Such a wave of hiring is unlikely to be repeated over the next few months, so payroll growth won't be sustained at its October pace.
The May NFIB survey and the April JOLTS report, both released yesterday, paint a coherent, if not yet definitive, picture of labor market developments which should alarm the Fed. The data suggest that the true labor supply, in the eyes of potential employers, is much smaller than implied by the BLS's measures of broad unemployment.
We have no argument with the consensus view that the language accompanying Wednesday's rate hike will be emollient. The FOMC likely will point out that the policy stance remains very accommodative, and seek to reinforce the idea that it intends to raise rates slowly. That said, recent FOMC statements have not offered any specific guidance on the pace of tightening, saying instead that the Fed "...will take a balanced approach consistent with its longer-run goals... even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
We expected a modest correction in the number of job openings in July, following the surge over the previous few months, but instead yesterday's JOLTS report revealed that openings jumped by a mind-boggling 8.1% to a new record high. In the three months to July, the number of openings soared at a 35% annualized rate. As a result, the Beveridge Curve, which compares the number of openings to the unemployment rate, is now further than ever from normalizing after shifting out decisively in 2010.
Korea's jobs report for January was nasty. The unemployment rate spiked to 4.4%, from 3.8% in December, marking the highest level in nine years.
The FOMC yesterday did what it had to do, and said what it had to say. The super-doves were kicked into line, with a unanimous vote, though two members' blue dots showed they think rates should not have been raised. In our view, though, Dr. Yellen's avowed intention to raise rates gradually sits uneasily with her--correct--assertion that policy remains very accommodative, bearing in mind that the unemployment rate is now at the Fed's estimate of the Nairu, while evidence of accelerating wage gains is burgeoning.
On the face of it, recent retail spending surveys have been puzzlingly weak in light of the pick-up in employment growth, still-robust real wage gains and renewed momentum in the housing market. We think those surveys are a genuine signal that retail sales growth is slowing, and expect today's official figures to surprise to the downside. But retail sales account for just one-third of household spending, and, in contrast to the early stages of the economic recovery, consumers now are prioritising spending on services rather than goods.
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.
Based on key economic indicators, the Eurozone economy is doing splendidly, relative to its performance in recent years. Real GDP has been growing at 1.6%-to-1.7% year-over-year since the first quarter of last year, bank credit has expanded, and the unemployment rate is declining.
Yesterday's data were second-tier in the eyes of the markets, but not, perhaps in the eyes of the Fed. The continued surge in job openings, which reached a 14-year high in December, means that the Beveridge Curve--which links the number of job openings to the unemployment rate--shows no signs at all of returning to normal.
The wave of May data due for release today likely will go some way to countering the market narrative of a seriously slowing economy, a story which gained further momentum last week after the release of the May employment report.
The pressures on U.S. manufacturers are changing. For most of this year to date, the problem has been the collapse in capital spending in the oil business, which has depressed overall investment spending, manufacturing output and employment. Oil exploration is extremely capital-intensive, so the only way for companies in the sector to save themselves when the oil prices collapsed was to slash capex very quickly.
You might want a strong coffee before you read today's Monitor, because we're going deep inside the relationship between the ADP employment report and the official numbers. We have long argued that ADP's headline reading is not a useful indicator of payrolls, because the numbers are heavily influenced by the official payroll data for the previous month, which are inputs to the ADP model. To be clear, ADP's employment number is not generated solely from hard data from companies which use the company for payroll processing; that information is just one input to their model.
The Fed plans to keep on hiking...falling unemployment is the key, not the softer CPI
China Takes the Trade High Road..The BOJ will Act Before Markets Expect Unemployment Upshift Rules out 2018 BOK Hike
Sub -4% Unemployment is coming, and soon...How will the Fed respond?
The EZ Economy Is Rebounding From The Virus...But Risks To Output And Employment Persist
The Recovery Has Gathered Momentum Since Early June...But Falling Employment And Capex Rule Out A V-Shape
Recovery To Be Protracted, Despite Policymakers' Efforts...Falling Employment And Capex Will Limit The Rebound In H2
While we were out, Brazil's economic, fiscal and political position continued to deteriorate further. The recession deepened in the fourth quarter, with Brazil's economic activity index surprising yet again to the downside in October, falling for the eight consecutive month. The index fell 0.6% month-to-month and 6.4% year-over-year, the biggest contraction since the index began in 2004. And the prospects for first quarter consumption and industrial output have deteriorated substantially. Unemployment increased further in November, and inflation continues to rise, with the mid-month CPI--the IPCA-15 index-- increasing 1.2% month-to-month in November, after a 0.9% increase in October.
The first major data release of 2016 showed manufacturing activity slipping a bit further at the end of last year, but we doubt the underlying trend in the ISM manufacturing index will decline much more. Anything can happen in any given month, especially in data where the seasonal adjustments are so wayward, but the key new orders and production indexes both rose in January; almost all the decline in the headline index was due to a drop in the lagging employment index.
We will have a much better idea of the pace of domestic demand growth after today's wave of economic data, though the report which will likely generate the most attention in the markets--ADP employment--tells us nothing of value. The headline employment number in the report is generated by a regression which is heavily influenced by the previous month's official data.
On the heels of yesterday's benign Q3 employment costs data--wages rebounded but benefit costs slowed, and a 2.9% year-over-year rate is unthreatening--today brings the first estimates of productivity growth and unit labor costs.
Whatever you do, don't fret over the apparent loss of momentum in the wages numbers; it's a classic statistical head fake, as we pointed out in Friday's Monitor, before the report. When the 15th of the month--payday for people paid semi monthly-- falls after the employment survey week, the BLS fails properly to capture their income, and hourly earnings are under-reported.
Chief U.K. Economist Samuel Tombs on Pay Growth and Unemployment
Chief U.S. Economist Ian Shepherdson on U.S. Unemployment
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%.
Chief U.K. Economist Samuel Tombs on U.K. employment
We're guessing Fed Chair Yellen would have preferred to have another acceleration in hourly earnings and a dip in the unemployment rate along side the hefty 211K leap in November payrolls, but no matter. At its October meeting, the Fed wanted to see "some further improvement in the labor market", and by any reasonable standard a 509K total increase in payrolls in two months fits the bill.
Over the sleepy August holidays, a view has gained traction in the media that the U.K. economy is showing little damage from the Brexit vote. Optimists argue that the size and composition of the 0.6% quarter-on-quarter rise in Q2 GDP, the 1.4% month-to-month jump in retail sales volumes in July, and the slight dip in the unemployment claimant count demonstrate that the recovery is in good shape.
Brazil's manufacturing PMI edged down to a six-month low of 45.2 in December, from 46.2 in November. This marks a disappointing end to Q4, following a steady upward trend during the first half of the year, as shown in our first chart. December's new work index fell to 45.2 from 47.7 in November, driving a slowdown in production, purchases of materials, and employment. The new export orders index also deteriorated sharply in December, falling close to its lowest level since mid-2009.
Markets and the commentariat seemed not to like the April ADP employment report yesterday but we are completely indifferent. We set out in detail in yesterday's Monitor the case for expecting a below consensus ADP reading--in short, the model used to generate the number includes lagging official data, some of which were hugely depressed by the early Easter--so it does not change our 200K forecast for tomorrow's official number.
In one line: Surging employment index means payroll weakness likely will be temporary
In one line: Activity is rebounding, but employment still is falling rapidly.
Since its October 2012 revamp, the ADP measure of private employment--the November survey will be released this morning--has tended to be little more than a lagging indicator of the official number.That's because ADP incorporates official data, lagged by one month, into the regression which generates its employment measure.
The second quarter is over but it is too early to give a reliable forecast of the pace of Brazilian GDP growth. However, an array of leading and coincident indicators points to a steep contraction in Q2 and a bleak second half of the year. Unemployment is leaping higher, along with inflation and household debt, and the ongoing monetary and fiscal tightening will further hurt the real economy ahead.
Evidence of slowing economic activity in Colombia continues to mount. Retail sales fell 2.0% year- over-rate in April, down from a revised plus 3.0% in March; and the underlying trend is falling. This year's consumption tax increase, low confidence, tight credit conditions, and rising unemployment continue to put private consumption under pressure.
Japan's services PMI points to Q2 GDP contraction. China's Caixin services PMI highlights the reasons for official concern over employment. Korea's current account slips into deficit for the first time since 2012.
The release of the NFIB survey at 6.00AM eastern time this morning--really, they need a new PR advisor--doubtless will bring a flurry of headlines about rising wage pressures, with the expected compensation index rising by a startling three points to a new post-crash high. But this is not news, nor is the high, stable level of hiring intentions; these key labor market numbers were released last week in the NFIB Jobs Report, which appears the day before the official employment report. The data are simply extracted from the main NFIB survey.
Mexico's economy is not accelerating, but it is holding up well in extremely difficult circumstances for EM. Growth is reasonably healthy, inflation is under control and the labor market is resilient. In short, Mexico is a success story, given the backdrop of plunging oil prices. The contrast with the disaster in Brazil is stark. Last week's survey and hard data continued to tell an upbeat story on Mexico's economy. The IMEF manufacturing index, Mexico's PMI, rose to 52.1 in November up from 51.6 in October, lifted mainly by gains in the employment and deliveries indexes.
Fed Chair Yellen's speech Friday was remarkably blunt: "Indeed, at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."
We aren't revising our payroll forecast in the wake of the ADP report, which showed private payrolls rising by 241K in December. We expected a bigger increase because ADP tends to lag the official data for the previous month, and the BLS reported a 314K jump in private employment in November, but the "shortfall" is too small to matter.
Japan's stable unemployment rate belies underlying weakness. Tokyo energy inflation turns the corner. Sales tax preparations breathe life into Japanese production in May... if only temporarily. Korea's IP plunge in May shows why Japan can't rest on its laurels.
We chose last week to ignore the payroll warning signal from the ISM non-manufacturing employment index, which rolled over in January and February, because the danger seemed to have passed. The ISM is not always a reliable indicator--the drop in the index in early 2014 was not replicated in the official data, but the plunge in early 2015 was--and usually it operates with a very short lag, just a month or two.
China's PMIs are not yet fully picking up the coronavirus; China's non-manufacturing PMI lifted by local government spending; not yet hit by the virus; Japan's job postings still suggest the unemployment rate is unsustainably low; Japan's national inflation has less far to fall than Tokyo's; The coronavirus will delay the return of Japanese retail sales to pre-tax hike levels; Investment goods drive Japan's IP rebound in December; no real support now for consumer goods production; December probably is as good as it will get for Korean industrial production, for now
German labour market data continue to break records on a monthly basis. The unemployment rate was unchanged at 6.2% in A pril, with jobless claims falling 16,000, following a revised 2,000 fall in March. March employment rose 1.2% year-over-year, down slightly from 1.3% in February, but the total number of people in jobs rose to a new high of 43.4 million.
In one line: Headline weakness hides employment rebound, but is it real?
Our payroll model, which incorporates survey data as well as the error term from our ADP forecast, points to a hefty 225K increase in November employment. We have tweaked the forecast to the upside because of the tendency in recent years for the fourth quarter numbers to be stronger than the prior trend, as our first chart shows.
If recent labor market trends continue, the four employment reports which will be released before the June FOMC meeting will show the economy creating about 1.1M jobs, pushing the unemployment rate down to 5.3%, almost at the bottom of the Fed's estimated Nairu range, 5.2-to-5.5%.
Banxico left Mexico's benchmark interest rate at a record low of 3% last week, maintaining its neutral tone and indicating that the balance of risks has worsened for growth, while the risks for future inflation are unchanged. Policymakers acknowledged the external headwinds to the Mexican economy, but underscored that private consumption has gathered strength thanks to improving employment, low inflation, higher overseas remittances, and better credit conditions.
Fed Chair Yellen speaks to the Economics Club of Washington, D.C., at 12.25 Eastern today, a day before she appears before the Joint Economic Committee of Congress at 10.00 Eastern. These will be her last public utterances before the FOMC meeting on December 16. Dr. Yellen won't say anything which could be interpreted as seeking to front-run the outcome of the meeting; that's not her style. But we expect her clearly to repeat that the Fed's decision will depend on whether progress has been made since October towards the Fed's twin objectives of maximum employment and 2% inflation.
We are taking our spring break starting tomorrow so it makes sense to preview the employment report today. To forecast payrolls, we start with the underlying trend -- mean reversion is the most powerful force in payrolls, most of the time -- and then look for reasons why this month's number might deviate from it.
The FOMC gave every impression yesterday that it was collectively very reluctant to drop "patient" from the statement--presumably, members conceded that the surge in employment growth left them no choice--and then did its very best to pretend that the change in the language didn't mean very much.
Today's labour market figures likely will cast doubt over the sustainability of strong growth in household spending. Growth in the three-month average level of employment likely weakened in August, from July's impressive 1.9% year-over-year rate.
Policymakers and macroeconomic forecasters at the ECB will be doing some soul-searching this week. GDP growth in the euro area accelerated to a punchy 2.5% year-over-year in Q3, and unemployment dipped to a cyclical low of 8.9%.
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 automotive sector accounts for 6.1% of total employment, and 4% of GDP, in the Eurozone.
Should you be feeling in the mood to panic over inflation risks--or more positively, benefit from the markets' underpricing of inflation risks--consider the following scenario. First, assume that the uptick in wages reported in October really does mark the start of the long-awaited sustained acceleration promised by a 5% unemployment rate and employers' difficulty in finding people to hire. Second, assume that the rental property market remains extremely tight. Third, assume that the abrupt upturn in medical costs in the October CPI is a harbinger o f things to come. And finally, assume that the Fed hawks are right in their view that the initial increase in interest rates will--to quote the September FOMC minutes--"...spur, rather than restrain economic activity". Under these conditions, what happens to inflation?
The fed will keep hiking each quarter...they are chasing unemployment, not inflation
The Fed deferred, but did not cancel, the start of its rate normalization last week. As a consequence, December is now the most likely meeting for the first hike. The Fed's core view of the U.S. economy remains the same, but policymakers want a bit more time to see how global developments affect the U.S. Our Chief Economist, Ian Shepherdson, expects the strength of the employment data, better Chinese numbers and calm financial markets to prevent any further postponement beyond Q4.
Chief U.S. Economist Ian Shepherdson on August Employment data
Chief U.S. Economist Ian Shepherdson on U.S. Employment
Chief U.S. Economist Ian Shepherdson discussing U.S. Employment
Chief U.K. Economist Samuel Tombs on U.K. employment
Chief U.K. Economist Samuel Tombs on U.K. Inflation
Chief US Economist Ian Shepherdson on today's Inital Jobless Claims data
Chief US economist Ian Shepherdson on the latest Jobs report
Chief U.S. Economist Ian Shepherdson on U.S. Jobless Claims
Chief U.S. Economist Ian Shepherdson on U.S. the impact of the Coronavirus on the U.S. Economy
Chief U.K. Economist Samuel Tombs on U.K Manufacturing in May
Chief U.S. Economist Ian Shepherdson discussing U.S. Economy
Senior International Economist Andres Abadia on Chile GDP.
Chief U.S. Economist Ian Shepherdson on U.S. payroll gains
Senior International Economist Andres Abadia on Chile's jobless rate
Provocative notes from Ian Shepherdson, the Chief Economist at Pantheon Macroeconomics
Chief U.S. Economist Ian Shepherdson on the effect of Covid19 on the U.S. Economy
Chief US economist Ian Shepherdson on the latest Jobs report
Chief US economist Ian Shepherdson on the latest Jobs report
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