US
US Payroll employment expanded a stronger-than-expected 242,000 with 30,000 in net upward revisions. The multi-period growth trends are strong and remarkably consistent: three months at 228,000, six months at 235,000 and one year at 223,000.
Even more impressive, US household-surveyed employment expanded 530,000 after racking up 1.1 million in the prior two months. The three-month tally (1.6 million) is the highest in 16 years. This lifted the employment ratio two notches to 59.8%, the highest level in seven years.
The US unemployment rate stayed at 4.9% (although, unrounded, it dipped slightly) as the participation rose two notches to 62.9% (matching a near two-year high). As was the case in January, the combination of the former being flat (or falling) and the latter rising shows the labour market is very robust right now.
The “underemployment” (U6) rate dropped two notches to 9.7%, the lowest level in eight years. Although part-timers for economic reasons stayed the same, the marginally-attached (discouraged) folks decreased.
However, the temporal metrics were disappointing. Average weekly hours dropped from their cycle high of 34.6 to 34.4, and aggregate hours fell 0.4%. The latter are still up 2.6% annualised over the past three months, but amid weak productivity trends, this doesn’t point to stellar real GDP growth.
On the surface, wages were another disappointment. Private average hourly earnings dipped 0.1% (2.2% year-on-year), but this can be chalked up to payback for January’s outsized +0.5% (2.5% year-on-year) move, which was boosted by many minimum wage increases to start the year. There could also be some calendar issues at play. Nevertheless, the combination of fewer hours and slower growing wages left average weekly earnings up only 1.6% year-on-year, the lowest in more than two years.
Overall, the consensus is that the Fed will remain on the sidelines on March 16th; the improving domestic backdrop supports the view that the Fed will continue on with its gradual tightening cycle in June.
EU
In the euro area the main event next week is the ECB meeting on Thursday with the rate decision at 13:45 CET and the press conference starting at 14:30 CET. The expectation is the ECB will cut the deposit rate by 10bp to -0.4%, to introduce a two-tier deposit rate system aimed at reducing the cost to the banking sector and signalling the deposit rate can go even lower.
The Sentix investor confidence for March (released Monday) will be followed closely for any signs of stabilisation following the latest improvement in financial risk sentiment. Recently there has been a feedback loop from weakness in financial data into economic surveys and partly due to this a very modest growth in investments in H1 2016 is expected, where an increased uncertainty is expected about Brexit and global growth to imply businesses will be cautious in terms of initiating new investments.
The second release of the euro area GDP growth in Q4 15 together with the first release of the sub-components will give more insight into the state of the weak euro area recovery (released Tuesday). Private consumption is expected to remain solid but that exports were the main headwind.
UK
Net lending figures for January showed that lending is increasing, probably due to the changes in stamp duty that take effect from April 1. Buy-to-let properties and second homes will be subject to a stamp duty homebuyer tax that is 3 percentage points higher than the rate for property to live in. The number of mortgage approvals increased to a two-year high and net mortgage lending increased to GBP 3.7 billion.
This week, all sectors reported their respective Purchasing Managers Index (PMI). In February, all in-dices fell. The manufacturing sector, struggling for a long time, managed to stay just above the thresh-old of 50. The construction sector reported a slowing sentiment as well, as the PMI fell to 54.2 in February, down from 55.0 in January. The services sector reported a decline as well due to the falling employment outlook and lower new businesses, in combination with higher uncertainty about the upcoming EU membership referendum.
China
The People’s Bank of China lowered banks’ reserve requirement rate (RRR) by 50 basis points on Monday. The share of lending that large banks are obliged to deposit with the central bank now stands at 17%. The RRR cut is positive in the sense that it releases liquidity for the banks and thus supports lending and the overall economy. However, it should be noted that the massive capital outflow in recent months has been met by FX interventions that have drained liquidity from the domestic interbank market. The RRR cut also acts to mitigate this effect.
China’s leaders are set to gather on Saturday at the annual meeting of the National People’s Congress. The annual growth target will be set for this year and will likely be between 6.5% and 7%. A draft of the new five-year plan will also be presented. The contents were already revealed in October, and consist of continued focus on rebalancing of the economy, innovation and supply-side reforms, a further opening (although this is probably halted short term due to the capital outflows), anti-corruption and green development.
Sources: Danske Bank, TD Economics, BNP Paribas, Handelsbanken, BMO Capital.
