Another solid month of US job creation could help keep alive investor hopes that the world’s largest economy is headed for a so-called soft landing, even as the Federal Reserve maintains its hawkish bias towards inflation.
Economists are predicting that employment figures on Friday will show non-farm payrolls grew by about 170,000 in August. If correct, that would mark the slowest rate of job creation since January 2021, but still roughly at the level needed to absorb most new entrants to the jobs market.
“We expect further signs of gradual labour market moderation, but not outright weakness,” Credit Suisse’s economics team said in a note to clients.
On Friday, Fed chair Jay Powell noted in a speech the unusual jobs market conditions where the number of new openings was falling but unemployment remained very low.
“There is evidence that inflation has become more responsive to labour market tightness than was the case,” he added. “These changing dynamics may or may not persist, and this uncertainty underscores the need for agile policymaking.”
The US economy grew by 2.4 per cent in the three months to June, according to a first estimate of gross domestic product. A second, fuller report on Wednesday is expected to show little change to that. Jennifer Hughes
Where is China’s economy headed?
This year has been a grim one for the Chinese economy. With the country’s long-awaited post-pandemic rebound fizzling out, metrics such as industrial output, retail sales and inflation have repeatedly underperformed already-lean forecasts. Separate figures showed youth unemployment surging to a record, before the measure was suspended entirely.
August was a particularly busy month for gloomy headlines. The economy sank into two separate measures of deflation for the first time since November 2020, a property sector liquidity crisis returned and a cut to the one-year loan prime rate, designed to stimulate lending, fell short of market expectations.
Output from China’s factories, a source of growth during previous economic cycles, has lagged while an initially-strong services sector rebound has lost momentum.
Analysts at ING expect August’s Caixin China General Manufacturing purchasing managers’ index, a private survey of activity, to slip to 49.1 next Friday, which would be its lowest reading this year. They expect a similar reading for the official PMI, which places a greater emphasis on larger, state-owned companies and is set for publication on Thursday.
“We expect these figures to show a further deterioration, as we await more substantial support from the government to boost domestic demand while global demand remains weak,” the analysts wrote, adding that China’s slowdown could drag on the economies of trading partners such as Japan, South Korea and Taiwan.
The consensus forecast for the official non-manufacturing PMI, which covers sectors including services, construction and agriculture, is 51.3, which would also be the weakest reading this year. William Langley
Will eurozone inflation ease the pressure on the ECB?
Eurozone inflation has halved from last year’s peak of 10.6 per cent and is expected to drop further when August data is released on Thursday. The key question is whether it will slow enough to convince the European Central Bank to stop raising interest rates.
Recent business surveys indicate the single currency bloc is heading for a fresh downturn, prompting investors to hedge their bets on the ECB raising rates for a tenth consecutive time when it meets on September 14. But much of this hinges on inflation.
Economists polled by Reuters forecast eurozone inflation to decline from 5.3 per cent in the year to July to 5 per cent in the year to August, despite a recent rebound in oil prices.
Angel Talavera, head of European economics at consultants Oxford Economics, said the ECB’s decision “still looks a coin toss”, while predicting a “small decline” in inflation would be enough for the central bank to pause its hiking cycle.
But he warned: “If the annual figure fails to decline, this could be enough for ECB hawks to gain the upper hand and push ahead with another rate hike in September.”
A rebound in European tourism this summer could keep services inflation high. This would complicate matters for the ECB, which has said underlying inflation — of which services are a big driver — needs to fall sustainably before it will stop raising rates.
“Given sticky core inflation — with our forecast for 5.3 per cent year-on-year in August and continued firm services inflation — we maintain our baseline for a final hike [by the ECB] in September,” said Sven Jari Stehn, head of European economics at Goldman Sachs. Martin Arnold
Source: Economy - ft.com
