US
The economic data calendar was light last week as the presidential election took centre stage. The NFIB relayed a generally optimistic tone from small businesses in October, as the measure increased to its highest point in 2016. The Job Openings and Labor Turnover Survey (JOLTS) report reiterated that the labor market was steady in September, with monthly fluctuations near cycle-highs as the economy continues toward full employment. Voluntary quits are on the rise, which signals confidence among workers that they can find another job and generally results in wage increases. The tight labor market is increasingly a top concern for small businesses looking to fill open positions or retain talent. Data continue to suggest the labor market is at “full employment”, despite differences across industries and skill levels.
Given the Presidential elections, the value of the University of Michigan Consumer Sentiment Report cannot be overstated. Preliminary results for November are released on Monday, which will provide a helpful baseline to measure the impact of the Trump election on the American consumer – the driving force of the economy.
On Tuesday, retail sales data for October is due out. After a weak Q3, it will be interesting to see whether core retail sales (which feed into GDP growth) picked up in October, as it is one of the first important indicators for consumption growth in Q4. The estimate for core retail sales is a growth of 0.3% month-on-month in October.
UK
Manufacturing production increased by 0.6% in September, up from 0.2% in August, beating the consensus estimate of +0.3%. The improvement was broad-based. On the other hand, total industrial production fell by 0.4% in September, after a similar drop in August. The consensus was for zero growth. However, the unexpected weakness was largely due to one-off effects and unusually warm weather. The weather effect lead to unusually low demand for heating, while maintenance work on petroleum installations in the North Sea, normally performed during summer, had been postponed. In Q3 as a whole, industry output fell by 0.5%, while the initial GDP estimate for Q3 had assumed a fall of 0.4%.
UK foreign trade disappointed in September, but monthly numbers are extremely volatile. The quarterly trade balance narrowed to a deficit of GBP 11 billion in Q3 from a GBP 12.7 billion deficit in Q2, suggesting a positive contribution from net trade to GDP growth in the quarter. According to the Office of National Statistics the sterling depreciation had not contributed to an improvement in trade as of yet, but survey measures of firms’ export orders indicate improvement ahead.
The UK CPI inflation for October is due on Tuesday. The total CPI inflation is expected to rise to 1.1% year-on-year in October from 1.0% in September, due mainly to higher fuel and food prices. The core inflation is also expected to fall back to 1.4% year-on-year in October from 1.5% in September, presumably due to a lower contribution from clothing and footwear prices, which rose significantly in September.
As the UK government’s position evolves regarding its relationship with the EU, recent rhetoric suggests it is prepared to gamble on a “hard” Brexit. Given the economic costs of such an outcome, this could be interpreted as an opening gambit in a poker game designed to ensure the unity of the Conservative Party. Moreover, the recent High Court decision allowing parliament a say over the triggering of Article 50 could change the odds. In reality, the business community and government want to minimise the economic damage. The best way to ensure this would be to design a trade agreement with the EU which inflicts some damage on the UK but avoids a worst case outcome.
EU
In the euro area, the industrial production for September will be released on Monday. Following the decrease in the German figures this week, a decrease in industrial production for the whole euro area is possible. Strength was shown in leading manufacturing PMI indicators observed back in August and September and industrial production in August saw a large increase month-on-month. However, it is unlikely that the September figures will show further growth month-on-month as the August figures were so strong. Therefore, the euro area is expected to follow the German figures and record a decline month-on-month in September.
On Tuesday, the ZEW expectations will be released. The ZEW increased to 6.2 in October and other economic survey indicators have shown strength in November. The Sentix far exceeded expectations and jumped to 13.1, the highest figure since 2015. The ZEW expectation is expected to follow the Sentix and rise in November.
China
China’s exports dropped 7.3% year-on-year to USD 178.18 billion in October followed a quicker 10% year-on-year decline in September. Despite a weaker renminbi, overseas shipments extended its streak of negative growth. This reflected underlying weaknesses in global demand amid softer growth prospect which undermined business and consumer spending worldwide. On the other hand, CPI accelerated to 2.1% year-on-year in October, marking its highest reading in the past six months. Producers’ prices sustained two straight months of increase, putting four years of factory gate deflation to a halt.
Consensus expects unchanged growth in retail sales and fixed investments in October at 10.7% and 8.2% year-on-year respectively and an uptick in industrial production growth from 6.1% to 6.2% year-on-year. Growth in the latter is likely to increase to 6.3% year-on-year, as indicated by the two PMI industrial activity indicators which both increased markedly in October to the highest level in more than two years. Growth in industrial production is set to take off as the process of scrapping overcapacity in the heavy industries draws closer to an end. Property construction activity and thus overall fixed investments will be dampened by the recent measures to cool down overheated property markets, but the effect will most likely not be visible in October.
Sources: Danske Bank, Haendelsbank, Wells Fargo, HansLeong, Commerzbank, TD Economics.
