German factory orders comfortably beat expectations
German factory orders post second successive month of strong growth in December but underwhelming manufacturing turnover figure suggests sluggish end to 2021 for production German factory orders posted a second successive month of strong growth in December, rising 2.8%M/M following growth of 3.6%M/M in November. Given the sharp drop in October, however, orders were still down some 4.2%Q/Q in Q4. And while at the end of the year they were up 5.5%Y/Y and almost 10% above the pre-pandemic level in February 2020, they were still 6.6% below July’s peak. Growth in December came from domestic demand, up 11.7%M/M to be little changed in Q4 from Q3; in contrast, foreign orders fell 3.0%M/M to be down almost 7%Q/Q in Q4 with new orders from the euro area down 4.2%M/M and those from other countries down 2.3%M/M. By type of good, the increase in demand was broad-based in December, with new orders for consumer goods up 5.3%M/M, intermediate items up 4.1%M/M and capital goods up 1.8%M/M. Over Q4 as a whole, orders for consumer goods were also up (3.7%Q/Q), but demand for intermediate items was down somewhat (-0.5%Q/Q) and new orders for capital goods were still much weaker (-7.6%Q/Q). Despite the pickup in total new orders in December, manufacturing turnover was up just 0.2%M/M to be still 2.9% below the pre-pandemic level, pointing to a sluggish end to the year for production, for which data will be released on Monday.

French production moves sideways at end of 2021 to be still well down on the pre-Covid level
French manufacturing production inched up 0.1%M/M in December after a drop of 0.6%M/M the prior month to be down 0.2%Q/Q in Q4. Industrial production as a whole was similarly broadly flat, falling 0.2%M/M in December to be down 0.2%Q/Q in Q4. But construction output ended the year on a particularly weak note, dropping 6.9%M/M to be down 1.3%Q/Q in Q4. Compared to the pre-pandemic level in February 2020, manufacturing output was still down some 5.9%, with overall IP down a similar 5.3%. Capital goods saw the best growth at the end of the year. Indeed, production of motor vehicles rose 11.7%M/M following growth of 10.1%M/M in November to be up 4.0%Q/Q in Q4. But they were still more than 14% below the pre-pandemic level. Output of machinery and equipment rose 0.5%M/M to be down 0.3%Q/Q in Q4 and 3.8% below the pre-pandemic level. While production of intermediate and consumer durable goods fell in December (respectively by 0.8%M/M and 1.1%M/M), they rose in Q4 (0.8%Q/Q and 1.0%Q/Q). Both categories, however, were still down more than 3½% from the pre-pandemic level.

Euro area retail sales probably fell in December for the first time in five months
Later this morning will the release of data for euro area retail sales in December, which are expected to have fallen for the first time in five months amid more stringent pandemic-related restrictions and following strong growth in November. Expectations are for a decline of 0.9%M/M, almost fully reversing November’s 1.0%M/M increase, and resulting in a quarterly rise of 0.9%Q/Q in Q4 matching the increase in Q3. Of course, total consumption will have slowed more substantially reflecting the hit to services during the latest pandemic wave.

All eyes today on the US labour market report, which will be distorted by the Omicron wave
Of course, of most interest in terms of economic releases today will be the US labour market report. While yesterday’s weekly jobless numbers suggested that claims had fallen again slightly from their peak two week ago, they remained above their level at the end of last year. And after the ADP report earlier this week showed a drop in its measure of nonfarm private employment of 300k, there are clear downside risks to today’s payrolls number due to the Omicron variant as more than 5mn people were infected in the week of the survey. The median forecast on the Bloomberg survey is now 125k, which would be the softest since the drop in December 2020 and well down from the average job growth of 565k in 2021. And many economists forecast a negative print.

Today’s report will also contain benchmark revisions to the payroll figures based on a universal count as of March 2021 – a preliminary estimate published in August showed that payrolls in the benchmark month were 161,000 lighter than previously believed. And as with every January report, the household survey will incorporate new population controls without revising past results and so figures – including for unemployment and labour force participation – for January will not be strictly comparable with previous results. Nevertheless, the unemployment rate is expected to remain unchanged at just 3.9% in January while wage growth should remain firm – both consistent with a tight labour market.