Closing summary
Remember that Goldilocks report that we talked about earlier? The non-farm payrolls numbers appear to have delivered pretty much that. Not too hot, not too cold.
Donald Trump, the US president, had an early dig at Federal Reserve chair Jerome Powell, shortly before the jobs numbers came through, but moved on quickly to watching Fox News, if his Twitter feed is to be believed.
While clearly below expectations, the 130,000 jobs added by the US economy in August was not too far below the 158,000 consensus – and doesn’t add to recession warning lights.
There has been a clear slowdown in the jobs market, according to Paul Ashworth, chief US economist at Capital Economics. But it wasn’t too bad, he added:
Aside from the headline payroll numbers, the rest of the employment report was actually quite positive.
That positive news means the Fed is still overwhelmingly likely to cut interest rates by no more than 25bp later this month.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said there are signs that “prolonged and deep uncertainty” over the trade war was denting investment plans.
However, today’s numbers could put off Powell’s stand-off with markets looking for renewed stimulus.
1. The nightmare scenario for the Fed has always been a slowing economy and rising inflation.
— Ian Shepherdson (@IanShepherdson) September 6, 2019
2. Not quite there yet, but the outlook for job growth has materially weakened, just as tariffs start to push up goods (CPI core goods y/y at 6y high) and wage gains starting to motor; 3-month annualized at 4.2%, highest in 11 years.
— Ian Shepherdson (@IanShepherdson) September 6, 2019
3. None of this will stop the Fed easing this month, but if these trends continue they'll find it very hard to deliver all the endless easing markets want.
— Ian Shepherdson (@IanShepherdson) September 6, 2019
Most economists think the trade war will eventually make its market on the jobs market (ahead of an election year), but it may not be quite there yet.
Hiring has clearly slowed in manufacturing -- 3k jobs added in August, and June/July revised down. But apart from a one-month blip, we have not seen outright job cuts as some predicted given the trade war. pic.twitter.com/DFvjiBXfSA
— Ben Casselman (@bencasselman) September 6, 2019
Thanks for following our coverage of economics, business and markets today. Please do join Graeme Wearden on Monday for more. JJ
The jobs growth was the weakest in three months, despite a boost from the hiring of temporary workers for the 2020 Census, the Bureau of Labor Statistics said.
The 130,000 reading was below the average for the year so far, as the US economy comes to terms with slowing growth. Economists expect Donald Trump’s trade war with China to weigh on growth further.
Job growth has averaged 158,000 per month thus far this year, below the average monthly gain of 223,000 in 2018.
Monthly non-farm #payroll gains eased to 130K in August but 3-month moving average is near pace needed to absorb population growth. Hiring for 2020 Census was a factor but gains occurred in construction, health services, professional/business services, and leisure/hospitality. pic.twitter.com/32ZhTakFkG
— Dr Thomas Kevin Swift (@DrTKSwift) September 6, 2019
Investors have tempered their slight mood of optimism from earlier.
Gold prices have recovered some of their losses after the weaker than expected print: spot prices are down by 0.2%.
The yield on the US 10-year Treasury has fallen back to 1.57%, but remains within today’s trading range. The dollar similarly pared some earlier gains.
Trump: "Where did I find this guy Jerome?"
Donald Trump, the US president, already has his thoughts on monetary policy – getting his jibes in early just ahead of the payrolls data.
I agree with @jimcramer, the Fed should lower rates. They were WAY too early to raise, and Way too late to cut - and big dose quantitative tightening didn’t exactly help either. Where did I find this guy Jerome? Oh well, you can’t win them all!
— Donald J. Trump (@realDonaldTrump) September 6, 2019
Some more detail on the jobs numbers:
- The US Bureau of Labor Statistics revised down its reading for new jobs added in July from 164,000 to 159,000.
- The unemployment rate was 3.7% in August, unchanged from July and in line with consensus, but the participation rate rose marginally to 63.2% from 63.0% in July.
- Private-sector jobs fell by 35,000, while government jobs increased slightly.
US non-farm payrolls lower than expectations, at 130,000
The US economy added 130,000 jobs, lower than the 158,000 predicted by economists.
The FTSE 100 is slightly down, by less than 0.1%, while sterling has slightly moderated some of its earlier losses: it’s now down by 0.2% against the dollar and the euro.
The dollar index, which tracks a trade-weighted basket of currencies, is essentially flat ahead of non-farms, while the US 10-year Treasury bond yield has reached a day high of 1.604%, the highest since 23 August.
Powell is odds-on to loosen monetary policy, according to data from CME Group.
Investors’ market bets imply a probability of more than 90% that the Federal Reserve will cut interest rates by 25 basis points (0.25 percentage points) at its next meeting on 18 September.
But investors’ eyes are on the pace of change over the next few months. Markets are currently pricing at least two cuts by the end of this year.
Manufacturing data have been weak in the US recently, but jobs numbers from private payrolls provider ADP were relatively strong, giving economists a mixed picture of where the US economy may be heading.
Lukman Otunuga, an analyst at forex firm FXTM, said:
The non-farm payroll report for August is projected to show an increase of 160k jobs created and the unemployment rate holding steady at 3.7%. Should the US jobs report meet or exceed market forecasts, this should cool speculation over deep Fed rate cuts, ultimately supporting the dollar.
And now let’s have a look ahead to the US jobs numbers, due shortly.
The headline non-farm payrolls number is expected to fall, from 164,000 in July to 158,000 for August, if economists’ average forecasts are to be believed.
Federal Reserve chair Jerome Powell will be hoping for a Goldilocks non-farm payrolls number: too high and it could trigger a market adjustment in expectation of a delay to any stimulus; too low and it could undo the fragile optimism about the US economy.
Powell has come under massive pressure from Donald Trump, the US president, who has called repeatedly for interest rate cuts to support growth.
Powell, for his part, has said that the president’s trade war with China is one of the major risks to the global economy.
Wetherspoons’ boss Tim Martin has pledged to slash the price of lagers, spirits, wine and cider if the UK leaves the EU, after shaving 20p off a pint of ale to illustrate the Brexit benefits he expects for drinkers.
Martin has been one of the most vociferously pro-Brexit figures in the world of business, repeatedly insisting that leaving the European Union, even without a deal, will mean cheaper prices for customers.
Wetherspoons has cut the price of Ruddles, an ale made by Greene King, by an average of 20p across its 900 pubs. Although Ruddles is made in the UK Martin said a low-tariff regime would cut overall costs for Wetherspoons, which it could then pass on to drinkers.
Could Boris Johnson’s hoped-for election spell the end of bank bonuses?
John McDonnell, Labour’s shadow chancellor, has threatened to ban the payouts to bankers, in an interview with the Financial Times (£).
He said banks should scrap large bonuses voluntarily or face a potential ban.
If it continues and the City hasn’t learnt its lesson, we will take action, I’ll give them that warning now. If we have to take action, we will. People are offended by bonuses.
US stock market futures have gained ahead of the jobs report.
Futures for the S&P 500 benchmark index have gained 0.37%, Dow Jones industrial average futures have gained 0.4%, and Nasdaq 100 futures are up by 0.3%.
Whether that mood of mild optimism holds will depend in large part on the non-farm payrolls number.
Gold prices slip as investors eye riskier assets
The news yesterday that the US and China will resume trade talks next month – coupled with a relatively strong private-sector estimate of jobs growth – have given investors a bit of appetite for riskier assets as we head towards the non-farm payrolls data.
Precious metals have taken a bit of a hammering today, with gold prices down by 0.9%. Gold is generally considered a safe haven investment by investors, so prices fall when investors are feeling more confident about the outlook.
Silver prices also fell, by 2.5%, while platinum spot prices slumped by 2.7%, in part because of concerns of oversupply.
US government bond yields have also risen, as investors have moved their money elsewhere. Bonds yields rise as prices fall due to lower demand for the safe-haven assets.
The US 10-year yield hit 1.6% on Friday, its highest level since 23 August, when an announcement of higher tariffs on China by Donald Trump, the US president caused a rush for safety.
Boris Johnson’s decision to prorogue parliament for five weeks is legal, the high court in London has ruled.
In a judgment handed down by three of the most senior judges in England and Wales, the prime minister was found to have acted lawfully in the advice he gave to the Queen to suspend parliament from next week, writes Owen Bowcott.
The ruling will go to appeal at the supreme court, which has already announced it is prepared to hear any appeals on 17 September.
You can read the full story here:
A fun fact from Reuters’ UK economics correspondent, Andy Bruce: more Britons than ever before have no idea what is going on with monetary policy.
Record proportion of UK public (28%) have no idea where interest rates are heading, according to @bankofengland survey.
— Andy Bruce (@BruceReuters) September 6, 2019
Perhaps understandably! pic.twitter.com/lxYow6acvv
As he notes, the public should probably be forgiven this time. Even Bank of England governor Mark Carney himself would be hard-pushed to predict what is going to happen with Brexit – or whether it will have even happened by the time he leaves on 31 January.
If there is a no-deal Brexit the Bank could repeat its shock-and-awe rate cut and quantitative easing – but the Bank’s ratesetters have strenuously tried to persuade markets that rates could go either way.
We know that there is a world of difference between the economies of London and some of the UK’s other regions. Some really interesting data from the Office for National Statistics (ONS) put some numbers on the diverging fortunes of people in the capital and elsewhere.
London’s economy has outstripped all other English regions with a 19% surge in growth since 2012, according to data compiled from VAT returns from businesses, rather than the usual surveys used to measure economic growth.
The ONS underlined the city’s disproportionate economic heft in its first set of regional GDP figures for England and Wales, which showed the north-east with the slowest growth over the same period at 5.9%.
This map, showing regional GDP growth across the UK since 2012, should really be one of the defining images of the post-crisis period.
But there are some real surprises as well: London’s financial services sector has been in recession since the third quarter of 2017 (to the end of 2018).
You can read Phillip Inman’s full story here:
Even the world’s second-largest economy needs some help from time to time. As a trade war with the US dents growth, and with fears of a recession rising in countries including Germany and the UK, China is stimulating its economy.
China’s central bank has announced another round of stimulus today: the People’s Bank of China has cut the amount of money banks have to hold against their loans, in an effort to make them lend more.
It’s the seventh cut since early 2018, Reuters reports:
China’s central bank said on Friday it was cutting the amount of cash that banks must hold as reserves for the third time this year, releasing a total of 900 billion yuan (£102bn) in liquidity to shore up the slowing economy.
The People’s Bank of China (PBOC) said on its website that it would cut the reserve requirement ratio (RRR) by 50 basis points (bps) for all banks, with an additional cut of 100 bps for some qualified banks.
The broad-based cut will be effective 16 September. The additional targeted cut will be in two phases, effective 15 October and 15 November.
The FTSE 100 has turned positive for today: it’s now up by 0.15%.
Reuters is crediting the weaker pound (although it remains little changed from earlier today – still around the $1.23 mark against the US dollar).
A rare chart-topping position for packaging maker Smurfit Kappa. Note Berkeley Group’s relatively strong performance that has pulled fellow housebuilder Barratt up the charts.
Eurozone growth came in unchanged on its third estimate: 0.2% growth in the second quarter of the year.
A minor beat on the headline year-on-year growth rate, remaining at 1.2% against 1.1% expectations, but otherwise no shocks.
The country-by-country breakdown tells a tale: the UK economy was the worst performer in the EU during the second quarter (although Luxembourg, Malta and Ireland data were not available); Germany was the worst in the eurozone.
Labour will not back election on Monday
Labour has confirmed that it will not vote for an election on Monday even if a bill intended to stop a no-deal Brexit passes before then.
The decision is a blow to Boris Johnson, who had asked for an election after parliament took control of the order paper and he lost his parliamentary majority; MPs are pushing through a bill that will prevent a no-deal exit.
Shadow foreign secretary Emily Thornberry laid out Labour’s reasoning this morning to the BBC, reports Andrew Sparrow:
If we vote to have a general election, then no matter what it is that Boris Johnson promises, it is up to him to advise the Queen when the general election should be. And given that he has shown himself to be a manifest liar, and someone who has said that he will die in a ditch rather than stop no deal, and indeed his adviser, [Dominic] Cummings, has been swearing and shouting at MPs saying they are leaving on 31 [October] no matter what, our first priority has to be that we must stop no deal and we must make sure that that is going to happen.
Johnson has also faced criticism over his decision to use a backdrop of police officers for a speech yesterday. The bizarre event will likely be remembered for some time, after a rambling delivery from the prime minister and an officer sitting down when feeling faint.
The politics live blog is up and running for what promises to be another eventful day.
Industrial production would have to increase by a total of more than 2.5% in the coming two months just to return to the level of the second quarter, according to Carsten Brzeski, chief economist at ING Germany.
Not impossible but currently very unlikely.
It is a marked turnaround from last year, when manufacturers were facing the only problem they like to have:
Who still remembers last summer when the biggest problem for the German economy was supply-side constraints? The lack of demand has now become one of the most pressing issues.
Things could get worse if the hot summer continues to drag down water levels on the Rhine river. It may sound like an oddly antediluvian economic indicator, but a shallower river means some stretches of the river become impassable, forcing companies to ship goods on land.
At least in the short run, the prospects for German industry remain bleak. Even with a magnifying glass, it is impossible to find signals of an imminent rebound. Shrinking order books, high inventories and continuing external uncertainty do not bode well for the coming months.
Data give "a convincing signal that Germany is in recession"
Let’s get a bit more on the main development so far this morning: that drop in German industrial production.
The signs are not good for the German economy, according to Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. He said:
The July industrial production headline combined with the dreadful retail sales number now send a convincing signal that the German economy is in recession. The August and September numbers could still spring upside surprises, but we don’t have high hopes.
As noted earlier, Germany’s exporters (think the makers of cars, lifts, trains, etc.) are exposed to global uncertainty over trade. And the long recovery since the financial crisis is reaching an age that makes economists nervous.
A question in the comments from Peuplier (channeling the Queen): why did economists not see the German production fall coming, after a string of poor numbers? While there of course may be some issue with the models used by the economists, it could also be a function of there being a bit of a lag on the forecasts.
Andrew Kenningham of Capital Economics notes that economists’ actual expectations for the reading may have been downgraded after poor factory orders data published yesterday. And the previous month’s number received a notable mark-up (even if it was still a big drop) so the forecast miss could be a case of getting the profile of the slump wrong, rather than the absolute size.
A sterling update: after a dramatic week of Brexit news, so far today the pound has started the day on a more even footing.
Against the US dollar the pound is down by 0.2% today, but remains just above the $1.23 mark reached yesterday. It is struggling a bit more against the euro, with the pound down by 0.3%, just above €1.11.
That was the first time that sterling had jumped above $1.23 in five weeks, in the early days of Boris Johnson’s ascent to prime minister.
The only real question in town for sterling’s medium-term prospects is whether the UK will exit the EU on 31 October without a deal. A no-deal Brexit would almost certainly see sterling plunge, given the overwhelming consensus among economists that disruption to trade would weaken the British economy.
That $1.23 mark represented quite a rebound from earlier in the week, when it briefly dipped below $1.20 on fears that Johnson really could push through a chaotic exit. When parliament took control investors welcomed a perceived diminished risk of no deal.
You can read more from last night by yours truly here:
House prices across Britain held steady in August, as the continued strength of employment numbers and a lack of supply made up for the Brexit chaos.
House prices rose by 0.3% month-on-month to an average of £233,541, according to figures published by Halifax, the bank.
Over the last year Halifax’s data show UK house prices rose by 1.8% – markedly lower than the 3.4% expected by economists. Prices have barely changed since March, according to Russell Galley, Halifax’s managing director. He said:
While ongoing economic uncertainty continues to weigh on consumer sentiment – with evidence of both buyers and sellers exercising some caution – a number of important underlying factors such as affordability and employment remain strong.
Although the housing market will undoubtedly be influenced by events in the wider economy, it continues to show a degree of resilience for the time being. We should also not lose sight of the fact that the single biggest driver of both prices and activity over the longer-term remains the dearth of available properties to meet demand from buyers.
We’ve got two posts in without a mention of Brexit. That brief hiatus is now over.
However, it’s something of a break from the rest of the week’s chaos (much more detail to come on that later), with housebuilder Berkeley Group saying it sees a strong market in London and the south-east of England even with Brexit concerns reaching an even higher pitch.
But the company projected pre-tax profit in each of the next six years to be lower than last year and said it was looking at ways to limit a hit from a potentially disruptive Brexit, Reuters reported.
The company set a pretax profit target of £3.3bn over the six years to April 2025, with profit in any one year expected to be between £500m and £700m. It posted pretax profit of £775m in its latest financial year ended 30 April.
The group holds its annual meeting today – keep on eye on investors’ reaction to boss Tony Pidgeley’s pay. Berkeley capped the amount bosses could earn through their lucrative bonus scheme in 2017, after years of bumper payouts in line with big profits.
Berkeley has been a recipient of the government’s help-to-buy subsidy throughout much of the last decade.
The FTSE 100 has fallen back in early trading, down 0.25%, despite a slightly lower pound (usually a boost to the blue-chip index’s multinationals).
It’s fairly flat otherwise on European stock markets. Germany’s Dax rose by 0.2%, while France’s Cac 40 was flat.
German industrial production shrinks, missing forecasts
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Economists think that storm clouds are gathering across the global economy, and few indicators have been flashing as constantly as those tracking German industry.
The latest figures from Destatis, published this morning, show a 0.6% month-on-month decline for July, compared to economists’ average expectations of a rise of 0.4%.
That represented a further decline from the steep fall of 1.1% (revised up) in the previous month – although the weakness was somewhat anticipated by factory orders data yesterday.
#Germany Industrial Production month-on-month at -0.6% https://t.co/Wet9gUUlEY pic.twitter.com/E03lCxxKPE
— Trading Economics (@tEconomics) September 6, 2019
In the second quarter of 2019 output shrank by 1.8%, as uncertainty around the US-China trade war and a global slowdown in demand for cars weighed on production.
Germany’s industry has now shrunk in six of the last 12 months, according to the Destatis data.
The industrial recession is continuing in the third quarter and looks set to drag on beyond that, according to Andrew Kenningham, chief Europe economist at Capital Economics. He said:
There is still no sign in the latest surveys that the manufacturing recession is bottoming out. The average reading of the manufacturing PMI in July and August was very low (just over 43) while the Ifo business climate for August fell to its lowest level since November 2012.
The figures will be further food for thought for Angela Merkel, the German chancellor. She is in Beijing today, with dinner with Chinese president Xi Jinping scheduled for this evening.
It is a sensitive moment, amidst a full-blown trade war between the US and China. Donald Trump, the US president, has also threatened to turn his eye towards Germany’s large trade surplus.
“We hope that there will be a solution in the trade dispute with the United States since it affects everybody” in the world, Merkel told Chinese Premier Li Keqiang at Beijing’s Great Hall of the People during a two-day trip to China, according to Reuters.
One important factor in the trade war (potentially both a cause and a consequence) is the health of the US economy. We’ll get a vital health check later today, at 1:30pm BST, as the closely followed US non-farm payrolls jobs report come out.
Economists expect the US economy added 158,000 jobs during August, down from July. Keep a lookout for Trump tweeting in the aftermath – and pity Federal Reserve chair Jerome Powell, who has to talk in public this evening.
Powell has come under extraordinary pressure from Trump to cut interest rates to stimulate the economy. If the figures miss expectations then a repeat of Powell’s Jackson Hole speech – when Trump blew the Fed’s careful planning out of the water – might be on the cards.
The agenda
- 8:30am BST: UK Halifax house price index (August)
- 10am BST: Eurozone GDP growth third estimate (second quarter)
- 11:30am: Russia central bank interest rate decision
- 1:30pm: Canada unemployment (August)
- 1:30pm: US non-farm payrolls jobs report (August)
- 5:30pm: US Federal Reserve speech by Jerome Powell
Updated
