UK labour market report shows ongoing strong growth in payrolls

Chris Scicluna
Emily Nicol

US equities start the week on a softer note; weighs on Asia-Pacific markets today
While the US bond market was closed yesterday for the Columbus Day holiday, the equity market continued to trade with the S&P500 grinding out a 0.7% loss on low holiday-impacted volumes. New highs in energy prices – albeit walked back later in the session – may have sustained inflation fears, while China-centric risks continued to receive airplay in market commentaries. And with the Q3 earnings season kicking off this week in earnest with reports from the major banks, financial stocks fared worse than most. After failing to rebound with Treasury yields on Friday, the greenback began the week on a firmer note, with ¥/$ rising above 113 for the first time in three years.

While cash Treasury yields initially re-opened higher during today’s Asian session, the 10Y UST is currently trading near Friday’s close of 1.61% with US equity futures contracts down about a further half percentage point as we write. The somewhat negative tone has carried through into Asian equity markets. In Japan, after rallying almost 3% over the previous two sessions, the TOPIX has declined 0.7% today, with BoJ data reporting annual producer goods inflation at a 13-year high – albeit with signs of momentum easing – and very slow growth in bank lending. Stocks are similarly weak in Mainland China and Hong Kong, while slightly larger losses have been recorded in South Korea. While the BoK kept its policy rate unchanged, as most had expected, Governor Lee signalled that a hike would be considered at next month’s meeting and that two policy committee members had opposed today’s decision to leave rates on hold. Australian equities are also slightly weaker today, with news of a sharp lift in business confidence to a four-month high tempered by firms’ assessment that business conditions had become less favourable over the past month.

Japan’s annual goods PPI inflation rate rises to fresh 13-year high in September
According to the BoJ, Japan’s goods PPI increased 0.3%M/M in September – 0.1ppt above the consensus estimate. However, because of slight upward revisions to previous months, the annual inflation rate increased to 6.3%Y/Y – 0.5ppts above the consensus estimate and the fastest pace since September 2008. Due to base effects, annual inflation was also 0.5ppts firmer than last month’s revised outcome. However, the increases over the past two months – 0.3%M/M and 0.1%M/M – are much smaller than in any other month since December last year, clearly indicating that upward momentum in goods price inflation is beginning to slow.

In the detail, the PPI for manufactured goods also increased 0.3%M/M. Given upward revisions, this raised annual inflation for these products by 0.4ppts to 6.4%Y/Y. Lumber prices increased a further 3.5%M/M – nonetheless the smallest increase since April – and so are now up more than 48%Y/Y. Prices for iron and steel increased 1.1%M/M (now up nearly 18%Y/Y) while prices for energy products increased 0.9%M/M (32.4%Y/Y). As in previous months, price increases were dominated by imported products, which in yen terms increased 1.1%M/M in September – albeit the smallest increase since last November – and so over 31%Y/Y. Prices for domestic products increased just 0.2%M/M for a second consecutive month but were still up 6.2%Y/Y, with prices for raw and intermediate materials increasing 8.1%Y/Y and 8.7%Y/Y respectively. Overall final consumer goods prices increased just 0.1%M/M in September – prices for domestically produced goods were unchanged – and so annual inflation for these items nudged up 0.1ppts to 3.2%Y/Y. Of course, goods prices at the CPI level are inflating at nowhere near that rate, with retailers either unable or unwilling to pass on the rise in input costs, at least at present.

Japanese bank lending growth remains low and stable in September; households still sitting on elevated bank deposits
Today’s other Japanese data also came from the BoJ, in the form of bank lending figures for September. Total bank lending increased just 0.6%Y/Y for a second consecutive month, thus continuing at the slowest pace since June 2012. Of course, this reflects base effects associated with last year’s scramble to access bank liquidity, with annual growth of 6.4%Y/Y in September far above the long-term average (growth of around 2-3%Y/Y was typical pre-pandemic). That said, the current demand for credit remains weak, with lending expanding less than 0.1%M/M in September. Lending at the major city banks – which had been the key suppliers of liquidity to corporates last year – was almost unchanged in September and down 1.1%Y/Y. Lending at regional banks grew just 0.1%M/M and so annual growth slowed to slightly to 1.8%Y/Y. On the other side of the ledger, bank deposits grew only fractionally in September. As a result, annual growth slowed to 4.6%Y/Y, having earlier peaked at 10%Y/Y as households elected to bank rather than spend last year’s government support payments. Indeed, bank deposits are currently almost ¥100trn above the pre-pandemic level, providing households with the means to lift spending as confidence returns.

UK labour market continues to strengthen, continuing to wave flags at the BoE

The UK’s latest labour market report was once again a positive one, with further improvements in payrolls, vacancies and unemployment, while wage growth remained robust albeit moderating seemingly largely due to base effects. In particular, following a cumulative increase of 690k between April and August, the number of payrolled employees rose a further 207k in September, the most during the current cycle, to 29.2mn, marking a rise of 3.6% compared with a year earlier and 0.4% (122k) compared with the pre-pandemic level. Once again, the biggest increases in payrolls were seen in those sectors that had previously been most acutely impacted by the pandemic – e.g. accommodation and food services, arts and entertainment, and wholesale and retail.


Consistent with labour and skill shortages, the number of vacancies in the UK in September maintained a firm upwards trend too, above 1mn for a third successive month, with 12 out of 18 sectors reporting record vacancies in the past quarter. Unsurprisingly, given clear evidence of ongoing staff shortages in the haulage sector, the strongest growth in vacancies in Q3 was reported in transport and storage (56%, 18.5k), while the retail and hospitality sectors also reported an extremely high number of vacancies – indeed, the highest ratio of vacancies per 100 employee jobs was in the accommodation and food services industry at 5.9%, compared with the total of 3.4% which itself was a record high. In addition, the number of hours worked surged in the three months to August (albeit remaining almost 3% below the pre-pandemic level), while the unemployment rate dropped 0.1ppt to 4.5%, down 0.7ppt from the pandemic peak at end-2020, albeit still 0.5ppt (146k) above the pre-pandemic trough. And the inactivity rate (for workers aged 16-64 years) dropped 0.2ppt from the previous quarter to 21.1%, still some 0.9ppt (346k) above the level before the outbreak of Covid.


Despite the strong uptrend in jobs, wage growth moderated somewhat, with average weekly earnings slowing by a further 1.1ppt to 7.2%Y/Y in the three months to August. Excluding bonuses, growth in earnings also slowed 0.8ppt to 6.0%3M/Y. That, however, appears principally to reflect base effects from the declines a year earlier. Indeed, given the fading impact of the pandemic and related compositional effects, including the drop in the number of workers on furlough and increased working hours, underlying wage growth – which is so important for the BoE as it tries to gauge the extent of domestically generated price pressures – has been especially difficult to interpret over recent quarters. Looking through the various distortions, the ONS estimates that underlying earnings growth might be somewhere in the range of 4.1-5.6%Y/Y, suggesting a notable pickup over recent months. Indeed, by reference, the peak in pay growth 2019 ahead of the pandemic was 3.9%Y/Y.


BRC survey suggests that UK retail sales growth moderated further in September

Despite ongoing improvements in the labour market, today’s BRC retail sales monitor again flagged a slowing recovery momentum in the retail sector, with signs that waning consumer confidence, due not least to supply concerns and rising prices, was starting to weigh on demand for larger purchases. Overall, the BRC measure of headline sales growth on the High Street eased in September by 2.4ppts to 0.6%Y/Y, the softest pace since January’s lockdown. And on a like-for-like basis, sales were down compared with a year earlier (-0.6%Y/Y), the first negative reading since March 2020. With the exception of clothing – boosted by the return to school and workplaces for many for the first time in eighteen months – the BRC reported that sales fell back across every major category.


…but overall credit card spending remained robust as consumers panic-bought fuel and increased spending on socialising

In contrast, today’s Barclaycard spending report suggested strong total spending growth last month due not least to panic buying as the UK’s supply crisis triggered extra expenditure on fuel. Indeed, spending on essentials on the Barclaycard measure was up 14.4%Y/Y, the strongest such growth for two years. At the same time, tallying with the BRC survey, the Barclaycard data suggested softer spending growth on non-essentials. But it also suggested increased social spending, with Barclaycard attributing a surge in spending at eating and drinking establishments in part to a more significant return to the office. Against the backdrop of ongoing supply chain shortages and rising food and energy prices, we expect to see a further moderation in discretionary spending over coming months. Certainly, Barclaycard and the BRC today cited a further waning in consumer confidence at the end of the third quarter, with Barclaycard noting that the share of Brits who felt confident in their ability to buy non-essential items fell 4ppts in September to 59%, the smallest since February.


German ZEW likely to point to increasing concerns about supply constraints and prices

Turning to the euro area, today brings just the German ZEW survey of financial experts. This is likely to point to a further moderation in both the current assessment and expectations balances, with the former expected to fall to a three-month low, while the latter is forecast to drop to its lowest since March 2020. This in part will reflect ongoing concerns about supply bottlenecks, as well as an associated rise in prices. Elsewhere, a pre-recorded speech by ECB President Lagarde will be presented for the Finance at Countdown event, while ECB Chief Economist participates in a fireside chat on the Economic Outlook at a conference on “EU and US perspectives: Changing climates”.


JOLTS and NFIB surveys ahead in the US today

As investors await tomorrow’s key CPI report, this week’s US economic diary kicks off today with the release of the JOLTS labour market and NFIB small business sentiment surveys for August and September respectively. Job vacancies surged to a record high of 10.9mn in July – almost 4mn above pre-pandemic levels – suggesting that a lack of demand for labour is not responsible for slower than hoped for growth in non-farm payrolls in recent months. Indeed, the last NFIB survey reported that a record proportion of small firms had vacancies that they had not been able to fill, with a record proportion also reporting that they had boosted compensation in order to try to attract the employees they are trying to find – increases that might ultimately sustain the current inflation pulse. Today’s Fed speaking diary includes Atlanta Fed Present Raphael Bostic, who will give an address on inflation to the Peterson Institute.


Aussie business confidence improves in September even as business conditions judged less favourably; weekly uptrend in consumer confidence continues

The economic focus in Australia today was on the NAB Business Survey for September. With businesses beginning to look forward to a gradual reopening of the economy as vaccination levels begin to meet the targets set by officials, the headline business confidence index jumped more than 18pts to 13 – the highest reading since May and about 8pts above the long-term average for the series. However, with lockdowns still in place in New South Wales, Victoria and ACT when the survey took place, firms assessed that business conditions had deteriorated during the month, with the closely watched business conditions index declining 9pts to 5 – a 12-month low and fractionally below the long-term average. Within that index, firms’ assessed trading, employment and profitability less favourably this month, with the latter falling an especially large 13pts to a 13-month low of 2. At least in part, the latter probably reflects ongoing upward pressure on firms’ input costs, with firms signalling that non-labour purchase costs had increased 1.9%Q/Q over the past quarter. The survey continued to indicate some pass-through to customers prices but it remains to be seen how much of that pressure has made it through to the CPI level (figures for Q3 will be released later this month).


Finally, with households perhaps also seeing light at the end of the lockdown tunnel amidst progress on vaccination, the ANZ-Roy Morgan consumer confidence index rose a further 1.0% to 105.6 last week – the fifth consecutive increased and so lifting the index to the highest level since the second week of July. Respondents were significantly more positive about the near-term economic outlook and about buying conditions for major household purchases. The latest instalment of the long-running monthly Westpac-MI measure of consumer sentiment will be released tomorrow.


Kiwi consumer spending rebounds on slightly in September

The only economic news in New Zealand today concerned the Electronic Card Transactions survey for September – an indicator of consumer spending taken from payments systems data. Sadly, after plunging almost 20%M/M in August in response to the strict nationwide lockdown that occurred during the second half of the month, spending rebounded just 0.9%M/M in September in response to the modest easing in restrictions that occurred subsequently. While sales of durable goods surged, sales of food and liquor fell following a large increase in August. Given today’s figures, spending fell 11.6%Q/Q in Q3 – a decline that will clearly underpin a sharp contraction in GDP during the quarter. 

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