European markets end lower
Continuing strength in the euro, a falling oil price and a decline in US markets, have combined to pull most European shares lower. On Wall Street, worries about a Chinese slowdown and concerns over the Republicans successfully implementing their tax plans were additional negative factors. The final scores in Europe showed:
- The FTSE 100 finished down 41.81 points or 0.56% at a five week low of 7372.61
- Germany’s Dax dropped 0.44% to 12,976.37
- France’s Cac closed down 0.27% at 5301.25
- Italy’s FTSE MIB fell 0.62% to 22,158.88
- But Spain’s Ibex bucked the trend, up 0.24% at 10,013.9
- In Greece, the Athens market dipped 0.19% to 718.80
On Wall Street, the Dow Jones Industrial Average is currently down 87 points or 0.38%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
Markets may be lower but could be supported at these levels. Chris Beauchamp, chief market analyst at IG, says:
Stocks are falling, volatility is on the up, China’s economic growth appears to be weakening and we even have a military coup to deal with. On the face of it, the situation would be ripe for a big selloff in equity markets, but this is not 2008 or even 2015. Below the surface some sectors, such as utilities, are recovering, while in the UK and Europe markets are off their lows.
It is options expiration week, and a look at positioning through put/call ratios suggests sentiment has become excessively bearish. Plus, Thanksgiving is on the horizon, and the week before this all-American holiday tends to be a good one. The bears can almost taste victory, but I suspect that 2017 will work its magic once again and the dip buyers will have their way.
US crude stocks rise
The concerns about a rise in US crude stocks last week proved well founded.
They climbed by 1.85m barrels compared to earlier forecasts of a 2.2m drop. Gasoline stocks rose by 894,000 barrels as opposed to the expected 0.9m decline.
Oil prices remained in the doldrums after report but at least recovered from their lows, with West Texas Intermediate now doen 0.46% at $55.24 a barrel.
US markets remain in negative territory although the Dow Jones Industrial Average is off its worst levels, down 131 points or 0.5%. Connor Campbell, financial analyst at Spreadex, said:
The markets looked pretty bloody this Wednesday, with the euro once again the only real winner.
With US investors already fretting about the Republican tax reforms – namely the party’s ability to push them through after they failed so spectacularly on healthcare – a weak pair of inflation and retail sales readings didn’t really do much to help matters. The former came in as expected at a measly 0.1% in October, down from 0.5% in September, while the latter arrived at a better than forecast, but still miserly, 0.2%.
Neither figure substantially threatens a December rate hike from the Federal Reserve; however, the tendrils of doubt are never too far away, meaning the US markets could have done with something more robust to drive away the current gloom.
Instead the Dow Jones is stuck with a 130 point fall, taking the index to a sub-23300, near 4-week nadir. The dollar wasn’t much better; while it held flat against the pound, largely due to sterling’s own inflation and wage growth issues, it shed 0.1% against the euro and 0.4% against the yen.
Things were just as glum in Europe. The FTSE is down around 50 points thanks to its commodity stocks, and is trading at its worst price since the end of September, while the DAX, displeased at the euro’s resilience, has shed nearly 120 points to hit a fresh 6 and a half week low.
UK used car sales fall
Back in the UK, and sales of used cars fell over the summer, according to the industry body. Julia Kollewe writes:
The Society of Motor Manufacturers and Traders said today that the used car market declined for a second quarter, with sales down 2.1% between July and September from a year ago. About 2.1m secondhand cars changed hands.
Superminis are still popular, making up a third of sales. Along with SUVs they were the only categories to show growth. Silver remains the most popular used car colour, closely followed by black.
Sales of hybrid and electric cars rose 17% to 25,196 units (electric cars alone urged 66.4%). While petrol sales fell 6.5%, demand for diesels rose 4.2% – in stark contrast to new diesels where sales have fallen sharply.
After a bumper first quarter the market remains at record levels, with more than 6.3m buyers opting for a used car in the first nine months of this year, up 0.1% on the same period last year.
Simon Benson, director of motoring services at used car website AA Cars, said:“Sales of used cars have suffered - but not nearly at the same rate as the new car market, which experienced a double digit decline last month. A lack of consumer confidence has rippled out across the market.”
The retail sales and inflation figures are likely to add more fuel to the fire in terms of a US rate rise next month, analysts believe.
But there is some uncertainty as to the future trend of borrowing costs, especially with a new Fed chair for the new year and a change in the composition of the decision making panel. Dennis de Jong, managing director at UFX.com, said:
The recently released figures from the US Bureau of Labor Statistics show that while inflation is creeping up as anticipated, it appears reluctant to move through the gears.
What this rising inflation will provide, however, is yet another tick on the checklist, as the Fed looks increasingly likely to raise interests rates next month.
With a December rate rise already priced in by many analysts, the next question is whether Jerome Powell, President Trump’s pick to be the next Fed chairman, continues current chair Janet Yellen’s cautious approach to rate movements.
ING economist James Smith said:
A pick-up in core inflation and solid retail sales suggests investors may still be too cautious about the rate hike outlook for the next year.
Falling core inflation has seen markets remain fairly cautious on the outlook for interest rates through much of this year. However, the latest data for October saw core CPI expectedly rise to 1.8% year on year, providing some tentative evidence that inflation may be finally starting to turn a corner. Headline CPI dipped back slightly to 2% as gasoline prices re-adjust following the hurricanes a couple of months ago.
This rise in core CPI tallies with the latest above-consensus producer-price inflation data released yesterday, which saw core PPI hit a five-year high of 2.4%. Given the weaker dollar and higher energy prices, we are optimistic that inflationary pressures will continue to build as we head into next year. Likewise, we also expect wage growth to continue gradually picking up in 2018.
There was some equally good news from today’s retail sales data. The headline rate of growth was held back somewhat by falling gasoline prices. But 0.3% month on month growth in the control group (which excludes volatile items) suggest that consumers started the fourth quarter on a solid footing. This is one reason why we are looking for another near-3% GDP growth reading this quarter.
All of this argues in favour of a December rate hike, but markets are still sceptical that we will get much more than one hike during next year. However, with the Fed broadening out the reasons for tightening policy - with references to loose financial conditions and rich asset valuations - we suspect investors are too cautious. There is also the annual rotation of regional Fed voters, which will see two hawks (Williams and Mester) take over the votes of two doves (Kashkari and Evans) in 2018. We expect two hikes next year.
US retail sales rise, as consumer prices edge up
Earlier there was some US data, showing both retail sales and inflation on the rise, albeit a very small increase in the latter
An increase in car purchases helped retail sales rise to a better than expected 0.2% in October, offsetting a decline in demand for building materials. Economists had forecast no change. Meanwhile the September figure was revised upwards from 1.6% to 1.9%.
On the inflation front, consumer prices edged up 0.1% in October as a boost to oil prices from the hurricane-related disruptions to the Gulf Coast fell away. In September, the consumer price index had climbed 0.5%.
The data - the inflation figures in particular - was seen as negative for the dollar. Lukman Otunuga, research analyst at FXTM, said:
Sellers immediately attacked the dollar on Wednesday after U.S. consumer prices marginally increased by 0.1% in October – the smallest gain witnessed in three months.
Although the 0.1% increase in consumer prices was in line with market expectations, it continues to highlight how stubbornly low inflation in the United States remains a recurrent theme. While it is widely expected that the Federal Reserve will raise interest rates in December, the future path of rate hikes beyond 2017, is open to discussion amid low inflation concerns. On a positive note, U.S. retail sales unexpectedly rose 0.2% in October which is likely to boost sentiment towards the U.S. economy and offer some support to the tired dollar.
Taking a look at the technical picture, the dollar Index dipped towards 93.40 following the release. The 94.00 level has the ability to transform into a dynamic resistance that could encourage a further decline towards 93.50 and 93.00, respectively. A solid breakout back above 94.50 threatens the current bearish setup.
Wall Street opens lower
US markets are on the slide again, hit by a falling oil price and continuing worries about the ability of the Republicans to achieve their proposed tax cuts.
West Texas Intermediate - the US benchmark - is down 0.9% at $55.19 a barrel after the International Energy Agency issued a gloomy outlook on the prospects for global demand for oil. Later come the latest US crude inventory figures, with investors worried they might show an increase.
So the Dow Jones Industrial Average is currently down 155 points or 0.66% while the S&P 500 opened 0.5% lower and the Nasdaq Composite lost 0.58%.
BoE deputy: Low unemployment will push wages up
Back in London, a Bank of England deputy governor has insisted that wages should rise in 2018 as low unemployment forces bosses to pay more for labour.
Obviously there’s not much sign of this happening yet, given today’s lacklustre wage growth.
But Ben Broadbent insists that reports of the death of the Phillips Curve (the classic inverse relationship between unemployment and pay) were exaggerated.
Deputy Governor of the @bankofengland Ben Broadbent - Brexit and Interest Rates - @LSEEI pic.twitter.com/CQC7SBSC88
— Angelo Martelli (@angelo_martelli) November 15, 2017
Broadbent told an audience in London that:
“Several commentators have questioned the MPC’s central prediction that wage growth will rise next year. Some have gone further and pronounced the death of the Phillips curve.
There are always risks to any forecast. But the latter claim, at least, is premature.”
Broadbent also blamed the tumble in the pound after the EU referendum for pushing down real wages, as the weak currency made imports pricier and thus pushed inflation up.
BoE's Broadbent: Brexit-Linked Fall In STG Is Why We Have Negative Real Wage Growth - RTRS
— LiveSquawk (@LiveSquawk) November 15, 2017
Breaking away from UK unemployment briefly, there are three important developments in Greece.
First, the Greek government has launched a €30bn debt swap, asking investors to hand over existing bonds in return for new debt.
It’s an attempt to ease Athens’ return to the financial markets after years of bailouts. These new bonds won’t mature for many years, sparing Greece any nervy repayment deadlines.
#Greece's Public Debt Mngnt Agency facilitates an important €29.7bn bond swap operation.
— Yannis Koutsomitis (@YanniKouts) November 15, 2017
New bonds to have far longer maturities: 5, 10, 15, 17 & 25 years.#ESM
But secondly, ratings agency DBRS has warned that Greece is unlikely to make much progress in its current bailout talks this year.
Thirdly, the country’s leftist-led government has taken further steps to relax capital controls that were imposed to stop its banks collapsing during the crisis two years ago.
Helena Smith reports from Athens
The Greek government’s narrative of impending exit from seemingly perpetual crisis took a knock today as the Toronto-based rating agency said it was unlikely that Athens would complete crucial bailout talks before the end of the year.
In a note the ratings service reckoned a compliance review with international auditors representing creditors keeping Greece afloat would not be completed until 2018.
Wrapping up the review was key to unlocking debt relief talks and discussions on the type of support Greece would receive once its current bailout programme ended in August next year
Meanwhile, the leftist-led coalition took another step Wednesday towards easing capital controls imposed to prevent a run on banks at the height of the debt crisis. A degree that went into effect today, foresees depositors being able to fully withdraw sums in bank accounts transferred from overseas as of December 1st. People who have not previously held bank accounts will also be able to open one under the new regulations signed by finance minister Euclid Tsakalotos and published in the government gazette.
Despite what the chancellor’s tweeted (see earlier) UK unemployment isn’t actually a record low.
The current jobless rate of just 4.3% is the lowest since 1975; in early 1974 it was just 3.6%.
Today’s jobless total of 1.42 million also isn’t a record - it was lower in 2004 and 2005.
Thanks to economics professor Danny Blanchflower for flagging this up.
@graemewearden re the chancellor's tweet you posted - today isn't the lowest unempt level ever 1,425,000 vs 6months in 2004 June-nov
— Danny Blanchflower (@D_Blanchflower) November 15, 2017
1,423
1,405
1,401
1,397
1,407
1,423https://t.co/oib31tXf5i
Warning of 'dramatic increase' in young people leaving the labour market
In another significant development, The Young Women’s Trust has warned an extra 42,000 young people dropped out of the labour market and the education sector in the last three months.
This group became economically inactive, and were not in education or training either - a worrying sign.
Joe Levenson, communications and campaigns director at the Young Women’s Trust, says the jump highlights the challenge facing young adults - particularly mothers with young children.
Levenson says:
“42,000 more young people are now economically inactive and out of education – a dramatic increase on the last quarter.
“Young women in particular are telling us they want to work but hundreds of thousands are getting shut out of the jobs market, including by a lack of convenient childcare and support. While the Government focuses on reducing its unemployment figures, 343,000 young women who are not included in the numbers are being left jobless and forgotten.
“At the same time, we have a youth debt epidemic, which is only set to worsen as prices rise and wages remain low. It can be especially hard for young mums; in many cases, an hour’s childcare can cost more than an hour’s wages. It’s time for action.
“Much more needs to be done to improve young people’s prospects. This means giving them the right skills and support to find jobs, ensuring decent and flexible jobs are available, and extended the National Living Wage to under-25s, so they are paid the same amount for the same work. This will not only help them to become financially independent but will benefit businesses and the economy too.”
This chart shows how the number of young adults who have left the labour force has risen, while those in work or looking for work has dropped:
Updated
Philip Hammond, the chancellor, has just welcomed the drop in unemployment and the rise in productivity seen today.
Unemployment at record low and productivity now growing at fastest rate since 2011. More still to do at Budget to lock this progress in.
— Philip Hammond (@PhilipHammondUK) November 15, 2017
(I suspect this tweet didn’t come directly from the chancellor’s thumbs; it would be very disrespectful to tweet during Prime Minister’s Questions - as Hammond is sat next to Theresa May on the front bench)
Updated
The number of people from other EU countries working in Britain has hit a record high, up by 112,000 in the last year.
That takes the total number of EU nationals to 2.38m. There are also 28.55m UK nationals in work (up 183,000 in the last year), and 1.21 million non-EU workers (down by 23,000).
The number of EU nationals working in UK has reached a new record level: 2.38 million employees, from July to September this year.
— Danny Shaw (@DannyShawBBC) November 15, 2017
That’s according to today’s labour market report - here’s the key chart:
My colleague Alan Travis has examined the data, and writes:
The figures from the Office of National Statistics show that the number of Polish and other east European nationals working in Britain has dropped for the first time in more than 10 years, down from 1,054,000 in the summer of 2016 to 1,035,000.
The number of Romanians and Bulgarians working in Britain has, however, continued to rise, from from 257,000 to 347,000 – a 90,000 increase that accounts for the majority of the overall increase in the last year.
More here:
Updated
With wages lagging inflation, struggling families may be forced to hit their credit cards hard this Christmas.
Positive Money’s director Fran Boait hopes that Philip Hammond can help next week - especially as the Bank of England has raised the cost of borrowing:
“As real pay continues to fall, households are being forced to borrow ever-greater amounts to make ends meet. The economy is being kept afloat on the back of families’ credit cards, at increasingly high interest rates.
In the budget later this month, the Chancellor must act to boost investment and deliver a sustainable boost to incomes, before it’s too late. We’ve had a rates rise - now it’s time for a pay rise.”
Resolution: Jobs market is losing momentum
The Resolution Foundation, the UK think tank, fears that Britain’s jobs market is losing momentum.
They are concerned by the drop in employment over the summer, as it could show the labour market is plateauing.
The persistent failure of wages to rise when workers have been in shorter supply is another worry. They say:
The biggest pay squeeze is taking place in other service sectors (-2.7%), public administration (-2.2%) and real estate (-1.9%), while pay growth is strongest in agriculture (+3.9%) and in support services (+0.8%).
Stephen Clarke, Resolution’s economic analyst, expects real wages to keep falling for the next few months. He says:
“After years of impressive growth, there are signs that the labour market may be losing momentum.
“The still strong picture on employment still refuses to have any meaningful impact on wage growth, as Britain’s pay squeeze is getting deeper.
“Today’s welcome productivity figures offer a glimmer of hope on pay, though it’s too early to say whether it can grow into a meaningful recovery.”
Resolution have also produced some charts to explain the pay squeeze:
The continuing pay squeeze means that there has been little progress in returning to pre-crisis levels of pay this year. We’re still £16 down from 2008 peak. pic.twitter.com/1n9eaogRWV
— ResolutionFoundation (@resfoundation) November 15, 2017
The pay squeeze is being felt across the economy. The public sector is being squeezed harder than the private sector, with only agriculture, admin, finance and the arts escaping pic.twitter.com/9YcjtG1G43
— ResolutionFoundation (@resfoundation) November 15, 2017
In the short-run this pay squeeze is about higher inflation. However, in the long-run only productivity improvements can address sluggish nominal wage growth pic.twitter.com/vFtxRnwOpJ
— ResolutionFoundation (@resfoundation) November 15, 2017
UK productivity growth hits six-year high
Amid the real wage gloom, there is an encouraging sign..... Britain’s economy appears to have become more productive.
The ONS estimates that productivity per hour grew by 0.9% in the third quarter of 2017.
That’s the first increase since the end of 2016, and is the highest rate of growth since Quarter 2 2011.
This could be a crucial factor in getting wages up -- as bosses have been blaming weak productivity for the meagre pay increases doled out to their staff.
David Willett, Corporate Director at The Open University, says it’s an ‘encouraging development’, adding:
“For too long the UK has been lagging behind, with a lack of higher skills limiting the agility and adaptability needed to drive organisations forward. Stagnant productivity is a significant barrier to growth at an uncertain time when we need to ensure the stability of our economy.
“Organisations now need to keep this up. With technology advancing at a rapid rate, and businesses looking to automate where they can, low-skilled jobs are increasingly under threat. It’s crucial that organisations invest in training their staff to build up essential technical and soft skills to future-proof them against changes in the political, economic and technological environment.”
Updated
Political reaction:
There’s something for everyone in today’s jobs report.
Britain’s minister for employment, Damian Hinds, has hailed the drop in UK unemployment:
“The strength of the economy is driving an increase in full-time, permanent jobs and a near-record number of people are now in work thanks to the Government’s welfare reforms.
“When unemployment fell to 5% early last year, many people thought it couldn’t get much lower, and yet it now stands at 4.3%.”
Everyone should be given the opportunity to find work and enjoy the stability of a regular pay packet. We’ve cut income tax for 30 million people since 2010, meaning people keep more of their money each month.”
But the labour market looks quite different if you’re on the opposition front bench.
Debbie Abrahams MP, Shadow Work and Pensions Secretary, points out that the cost of living squeeze hasn’t abated:
“Today’s stats are further evidence of Tory economic failure, only a week out from their next Budget.
“Both employment and real wages are falling while the price of household essentials balloons, leaving millions of people worse off than they were in 2010.
“Over seven million people live in poverty in working households.
“Labour will introduce a £10 an hour real Living Wage, scrap the public sector pay cap and reform the government’s failing Universal Credit programme.”
Britain is now suffering its second wage squeeze since the financial crisis, as this chart from the FT shows:
In UK, in real terms, adjusted for inflation, wages dropped 0.4% (incl. bonuses), dropped 0.5% (excl. bonuses), chart @fastFT https://t.co/F3urfnRnEh pic.twitter.com/5Sr6Mp7Lal
— ACEMAXX ANALYTICS (@acemaxx) November 15, 2017
More people have dropped out of the workforce
How can unemployment and employment both have fallen, I hear you cry.
The answer is that the number of adults classed as ‘economically inactive’ has gone up.
That means more people have simply dropped out of the labour market altogether.
Geraint Johnes, Research Director at the Work Foundation and Professor of Economics at Lancaster University Management School, explains:
“The latest labour market statistics show unemployment continuing to fall – by some 59000 between the second and third quarters of this year. The unemployment rate now stands at 4.3%.
The most recent fall, however, is due largely to a large increase in the number of people deemed economically inactive.
And here’s the key chart, showing how the number of economically inactive people in Britain rose by 151,000 in the last quarter.
That will include students, people stopping work to care for a family member, or look after young children, or just giving up the search for a job altogether.
Big surge in economically inactive (working-age) also linked to jump in ‘students’ up 19% q/q and 22% y/y in Q3. Students highest level in over 4 years.
— Ramseconomics (@Ramseconomics) November 15, 2017
Professor Johnes has also spotted that more people are only working part-time:
Meanwhile, part-time employment has risen, with an increase of 18000 part-time employees and 45000 part-time self-employed. Inasmuch as it continues a trend towards greater casualisation and insecurity in the labour market, this should be noted as a cause for concern. Overall the level of employment has fallen.
Updated
Britain’s ongoing wage squeeze is a “huge body blow” to consumers as they try to make ends meet in the run-up to Christmas, says Maike Currie of Fidelity International
She fears that real wage growth will remain “elusive” for some time:
With a number of factors keeping a lid on our earnings - from people working flat out in the gig economy yet still struggling with paltry pay, more and more people in self-employment, falling unionisation, automation and technology substituting man for machine, this is unlikely to change any time soon.”
Nick Macpherson, formerly the top civil servant at the Treasury, fears that the UK labour market is cooling....
Small but perceptible signs UK laour market may be beginning to turn after very good run. Inactivity⬆Vacancies, employment and real wages⬇
— Nick Macpherson (@nickmacpherson2) November 15, 2017
Here are some charts showing the state of the UK labour market:
This chart from the Office for National Statistics shows how wage growth has struggled to get much above 2% this year.
And that means that real wages are falling, whether or not you include bonuses:
- Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.2% both including and excluding bonuses, compared with a year earlier.
- Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) fell by 0.4% including bonuses, and fell by 0.5% excluding bonuses, compared with a year earlier.
Jul-Sep 2017 was the sixth three-month period in a row where earnings including bonuses fell in real terms https://t.co/vYgJXaCR8u pic.twitter.com/gkSUfDgoCd
— ONS (@ONS) November 15, 2017
Updated
The pound has risen slightly, as City traders welcome the pick-up in wage growth in the last quarter.
Latest data in Britain:
— Bloomberg Brexit (@Brexit) November 15, 2017
- Unemployment rate is 4.3%
- Holds at lowest since 1975
- Number in work falls by 14,000
- First decline in 13 months
- Wage growth just above 2%
- Far below rate of inflation
- Pound rises slightlyhttps://t.co/a9qPI1vM5r pic.twitter.com/a8WUPXISGS
UK employment total has dropped
Breaking! The number of people in employment across the UK has fallen, for the first time in nearly a year.
There were 32.06 million people in work in July-September, which is a 14,000 drop on the previous quarter.
This is the first drop since August-October 2016, and the biggest decline since April-June 2015.
The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.0%, down slightly compared with April to June 2017 but up from 74.4% for a year earlier, according to the Office for National Statistics.
*U.K. 3Q EMPLOYMENT FALLS 14,000, FIRST DECLINE SINCE 2016
— WorldFirst (@World_First) November 15, 2017
Unemployment rate remains at 4.3%
Britain’s jobless rate remains at a 42-year low of just 4.3%.
Unemployment fell by 59,000 between July and September to 1.42 million, the Office for National Statistics says. That’s 182,000 less than a year earlier.
UK wage squeeze continues
Breaking! Britain’s wages squeeze continued to bite in the last quarter, according to the latest Labour Market report just released.
Basic pay rose by just 2.2% per year in July-September, meaning that wages continued to lag inflation.
Pay including bonuses also rose by 2.2%.
In contrast, inflation was 2.7% in August, rising to 3% in September and October.
More to follow...
Updated
Britain has rediscovered its taste for Angel Delight!
Sales of the retro desert are up 30%, in a boost for Premier Foods.
Angel Delight first hit the shelves in the late 60s, when UK cuisine was more basic....
Overnight, Japan has posted its seventh consecutive quarter of growth, the longest run in over a decade.
Japanese GDP rose by 0.3% during the July-September, with rising exports making up for weaker domestic demand.
This will be welcomed by Tokyo as it tries to put Japan’s ‘lost decades’ behind it, and achieve steady growth and inflation.
But it also means Japan will be one of the slower-growing G7 nations in the third quarter; Germany grew by 0.8%, America by 0.75%, France and Italy by 0.5%, and the UK by 0.4%. All eyes on Canada....
On a nominal basis (not discounting for inflation), Japanese growth was 0.6%.
Another three months of nominal GDP growth in Japan, now up year-on-year for 18 successive quarters. But Abenomics doesn't work! 🤭💹🇯🇵 pic.twitter.com/KURes58B5p
— Mike Bird (@Birdyword) November 15, 2017
Updated
This chart, from manufacturing group EEF, shows how UK wages have fallen below inflation (the dotted line) this year:
Despite the sustained fall in the unemployment rate, wage squeeze is set to continue #ukeconomy #ukmfg https://t.co/guUjyCFSqS pic.twitter.com/3Sv2D0cKvA
— EEF Economics Team (@EEF_Economists) November 2, 2017
Today’s jobs report will paint a picture of an economy suffering from subdued wage growth, but enjoying record low unemployment.
Lukman Otunuga, research analyst at FXTM, says the pound could suffer if the wage figures are particularly bad.
He writes:
Although Britain’s unemployment rate is at a 42-year low, the buzzkill remains, that little sign of rising pay growth continues to weigh heavily on sentiment. If average earnings struggle to pick up, consumers are likely to continue feeling the squeeze, especially when considering how inflation remains at a five-and-a-half year high, at 3%.
The agenda: UK unemployment report
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s real wage squeeze is set to deepen today, when we get new data showing how the UK labour market is performing.
Economists predict that basic pay (excluding bonuses) grew by around 2.2% per annum in the July-September quarter, up from 2.1% a month ago.
Any increase would be welcome, but this would still leave wages lagging behind inflation - which ran at a five-year high of 3% in September and October.
Analysts at Royal Bank of Canada warn that UK wages will remain subdued for several months, but might then rise faster.
With the Bank of England’s Regional Agents’ survey indicating pay settlements could pick up next year to 2.5-3.5% next year, it could well be some way into 2018 before there is sufficient evidence from the labour market reports that pay growth is making a meaningful advance.
Today’s report may also show Britain’s unemployment rate stuck at just 4.3%, the lowest in over four decades.
In theory, such a tight labour market ought to drive wages higher as bosses compete to recruit workers.
Michael Hewson of CMC Markets explains:
With unemployment at 42 year lows of 4.3%, it surely can only be a matter of time before wage pressure starts to manifest itself further.....
We’ve already started to see increasing evidence that wages at the lower end of the income scale are rising at rates faster than inflation as the effects of increases in the minimum and living wage help pull up wages at the bottom of the pay scales.
This should inevitably see a trickle up effect as earners higher up the income scale start to demand higher wages in a tightening labour market,.
European stock markets are expected to dip this morning ahead of the jobs report, which is released at 9.30am.
Softer open in prospect for European indices after losses on Wall Street and steep sell off across Asian Pacific markets. #Crudeoil continues to slide. #FTSE called 20 lower
— David Morrison (@David_SpreadCo) November 15, 2017
In the City, Premier Foods, communication firm TalkTalk and housebuilders Barratt and Crest Nicholson are all reporting results.
Here’s the agenda
- 9.30am GMT: UK labour market report, including unemployment rate and earnings figures
- 10am GMT: Eurozone trade balance figures
- 1pm GMT: Bank of England deputy governor Ben Broadbent gives a speech at the London School of Economics.
- 1.30pm GMT: US inflation figures
- 1.30pm GMT: US retail sales
Updated
