Overview of the week commencing 5 June
Graham Cross, CEO
Although our thoughts are with those affected by the awful events both in London & Manchester, our economic focus this week is on Chinese manufacturing and US jobs.
We are a little concerned about the deterioration in Chinese manufacturing signalled by the Caixin survey. The index fell from 50.3 in April to 49.6 more recently. May’s reading comes just below the 50.0 neutral level, indicating a slim decrease in output volumes.
Meanwhile Dr Zhengsheng Zhong, chief economist at Caixin, is more than a little concerned. He worries that China’s economy is ‘clearly on a downward trajectory’. One reason we are not quite ready to press the panic button is that the official China manufacturing PMI presents a much less gloomy outlook. Of course if the official series does run closer to the 50.0 mark over coming months we may be in for a bumpy ride.
In the US, non farm payroll reported 138,000 extra jobs. This does not represent a particularly strong increase in the number of new jobs. Indeed, the last 3 months have seen an average of 121,000 new jobs compared with 201,000 for the prior three months.
Actually, there are one or two hints that seasonal factors might have conspired to depress the headline number and, in any case, the broader employment situation speaks of a much tighter labour market. The ADP Payrolls report showed a much stronger increase than the Non farm report and the unemployment rate, at 4.3 percent, stands at a 16-year low.
Mind you, we are not yet seeing robust wage growth. Salaries are rising at a rate of 2.5 percent each year. That compares with an increase of 4.0 percent back in 2001 when unemployment rates were at similar levels.
Nevertheless, there is nothing here to give the Federal Reserve pause for thought. It is very likely that a rate rise will be forthcoming toward the middle of this month.
It is election week in the UK with the pound waxing and waning in line with election polls. The variance in polling predictions is unusually high. The most recent poll, from Survation, puts the Conservatives on 40 percent and Labour on 39 percent. That contrasts with a poll from ComRes a day earlier which gives the Conservatives a 12 percentage point lead on Labour.
Our view is we are headed for a Conservative win. However, we think Theresa May, and others in her party, will be incredibly disappointed with anything less than a 50 seat majority, given where the polls were before the campaign began.