Japanese household spending in September boosted by the relaxation of restrictions but still sharply lower in Q3
Having declined in the previous four months, Japan’s household spending surprised on the upside in September, jumping 5%M/M, the largest monthly increase since March, with the relaxation of some pandemic-related restrictions providing a boost to expenditure on recreation (6½%M/M), clothing (6 ½%M/M) and food (4.7%M/M). Expenditure on medical care and education was also strong that month. Admittedly, spending on recreation and clothing still remained more than 18% and 15% lower than the respective pre-pandemic levels. And overall, the level of total household expenditure was still more than 2% lower than in February 2020, a whopping 10½% lower than the pre-consumption tax hike peak and 1.9% lower than a year earlier. Moreover, despite the better outturn in September, household expenditure was down more than 4½%Q/Q in Q3. And while the decline spending on core items was somewhat less marked (-3.0%Q/Q), today’s release further suggests that a drop in private consumption drove a contraction in GDP last quarter. More insight will be given in Monday’s BoJ consumption activity release, which typically provides a more accurate guide to the national accounts measure of consumer spending.
German production maintains downtrend in September as supply bottlenecks continue to bind; French IP down too; and growth in euro area retail sales likely to be subdued as consumers spend more on services
German industrial production continued to weaken at the end of Q3, dropping for the fifth month out of the past six as supply bottlenecks took an increased toll. Contrary to consensus expectations of a return to growth, and weaker even than suggested by the fall in turnover reported yesterday, total production declined 1.1%M/M to a thirteen-month low. That left production down 2.4%Q/Q over the third quarter as a whole and some 9.5% below the pre-pandemic level in February 2020. Having plunged almost 19%M/M in August, output of motor vehicles rose 2.1%M/M but was still about one third below the post-pandemic peak reached last November and more than 40% below the pre-pandemic level. And most other major categories reported declines in production, e.g. with machinery and equipment down 3.3%M/M, durable consumer goods down 2.0%M/M, and intermediate items down for a fourth successive month and by 1.1%M/M. Beyond the manufacturing sector, construction and energy output both rose about 1%M/M, but given earlier weakness both also fell 2.2%Q/Q in Q3.
French manufacturers also had a more challenging end to the third quarter. Industrial production fell a steeper-than-expected 1.3%M/M in September, with a similar drop in manufacturing (-1.4%M/M). Contrasting with Germany, the decline was principally driven by a whopping 14.6% fall in autos production, more than reversing the 11.8%M/M increase in August, to leave output in that sector still more than 30% lower than the pre-pandemic level. And the shortfall in overall manufacturing output compared to before the pandemic was still hefty too at 5.9%. Nevertheless, despite the softer end to the quarter, manufacturing output was still up 1.3%Q/Q in Q3. In contrast, while construction activity rose in September (2.5%M/M), it was down 2.2%Q/Q in Q3.
Later this morning September retail sales figures for the euro area as a whole will be released to provide some further insight into household consumption at the end of the third quarter. Not least given increased opportunities to spend on consumer-facing services, and following some weak German retail sales figures earlier this week, aggregate euro area sales might well report a drop at the end of the quarter despite initial expectations of further moderate growth. The euro area construction PMIs for October are also due.
UK surveys suggest that labour shortages persist despite end of furlough scheme
After the BoE yesterday unexpectedly left monetary policy unchanged, wishing to wait for more insight into recent labour market developments, today’s REC/KPMG report on UK jobs from recruitment agencies suggested that skill and labour shortages and mismatches remain a challenge for many firms. Among other things, the survey reported a shortage of candidates – reflecting fewer foreign workers and seemingly also a reluctance to switch to new roles against the uncertain economic backdrop – continued to hinder recruitment for both permanent and temporary placements. Indeed, according to this survey, payrolls growth slowed to the lowest in six months in October, albeit remaining strong. But with demand for labour still extremely strong, recruitment consultants reported a further sharp increase in starting salaries, by the most in the series 24-year history. Today’s survey therefore suggests limited impact on labour supply from the conclusion of the government’s Jobs Retention Scheme at the end of September. And this broadly tallies with yesterday’s ONS survey that estimated that 87% of furloughed staff had returned to work last month, with only 3% made permanently redundant and just 3% voluntarily leaving their roles. So, about 14% of businesses cited a shortage of workers in late October, with the hospitality sector still most acutely affected (38%). And not least due to rising wage competition, this sector also reported the highest staff turnover.
US labour market report in focus
All eyes in the US today will be on the October labour market report. While the services ISM saw the employment index fall to a four-month low last month, this contrasted with a pickup in the manufacturing employment ISM and the decent ADP report earlier this week. Overall, Daiwa America’s Mike Moran believes that the slowing in the spread of Covid-19 should allow for faster job growth, while the seasonal distortions that restrained job growth in education in September should also be largely absent. The resulting 500k increase in payrolls (up from 194k previously) that Mike expects should be strong enough to reduce the unemployment rate (from 4.8% previously), although an increase in the size of the labour force could limit the decline. The latest consumer credit figures for September are also scheduled for release today.