Overview of the week commencing 06 February
Graham Cross, CEO
Last week’s figures noted the US economy adding many more jobs than was expected during January. Meanwhile Chinese manufacturing output wasn’t quite as buoyant as was expected.
The US Bureau of Labor Statistics reports that January saw an increase in non-farms payroll numbers amounting to 227,000. That compares with consensus expectations of closer to 171,000. However, unemployment ticked up 0.1 percent as more citizens join in the hunt for a job and wage growth slowed from a year-on-year rate of 2.9% in December to 2.5% in January.
All of this makes for an interesting report because it challenges the central tenet of a Federal Reserve narrative that describes an economy on the way to ‘full employment’ with associated strong wage growth and, in turn, higher inflation.
Why, then, has wage growth subsided? January’s rise in minimum wage rates ought to have had the opposite effect. Our assumption is it has something to do with poor productivity levels. If that is the case, and if wages do not accelerate in February, our estimate of three rate rises this year looks a little less likely.
Two main China manufacturing surveys reveal some slowing in manufacturing activity. While both indexes remain above the 50.0 neutral mark shows that the sector is still expanding even if it is at a low to moderate pace. In the light of huge over-capacity in heavy industries, we’d be more concerned if the manufacturing base was heating up.
As the Lunar New Year – and week-long holiday – has come early this year readings are probably less reliable than at other times. The week ahead will give us a chance to check in on the economy Down Under and we’ll get an update on the British trade position.