Japan’s unemployment rises as latest pandemic wave sees a sharp fall in employment
Given the surge in coronavirus cases and associated reintroduction of restrictions, today’s Japanese jobless numbers predictably suggested that momentum in the labour market had turned negative at the start of the year. The number of people out of work rose 40k in January, to leave the unemployment rate up 0.1ppt to 2.8%. But this was flattered by a marked fall in the labour force at the start of the year. And the detail suggested that involuntarily redundancies rose to the highest since last May. Indeed, the number of employees fell by a much steeper 300k in January to leave them some 790k below the pre-pandemic level. Unsurprisingly, this reflected a reversal in the recent recovery in the recruitment of non-regular employees. But supported in part by the government’s job support programme, regular employment rose slightly in January and was still above the pre-pandemic level. Overall, the number of people in employment was down 190k on the month to 66.93mn, some 650k below the pre-Covid-19 level.

At face value, the uptick in the job-to-applicant ratio from 1.16 to 1.20 should imply a more encouraging near-term employment outlook. But while there was an increase in new job openings at the start of the year, the number of people willing to move roles declined. With consumer and business confidence having slumped further in February and with Covid containment measures having been extended we would expect to see little substantive improvement in employment growth over coming months.

German trade flows weaker but French IP rebounds at the start of the year
Likely in part due to the Lunar New Year holiday, but also reflecting the ongoing restraint caused by supply bottlenecks, German goods trade flows fell back at the start of the year. Despite continued price pressures, the value of exports on a seasonally adjusted basis dropped 2.8%M/M after rising a cumulative 6.9% over the preceding three months. And the value of imports dropped a larger 4.2%M/M having risen more than 12% over the previous three months. So, having dropped in December to the lowest in two decades bar the initial wave of Covid, Germany’s trade surplus rose €1.3bn to €9.4bn, still well below the range from mid-2020 to December last year.

In contrast, there was a marked improvement in industrial production in France at the start of the year. Output rose a stronger-than-expected 1.6%M/M in January, the fastest monthly growth for a year, to leave the level more than 1% higher than the Q4 average. Admittedly, this still left output almost 4% lower than the pre-pandemic level. Manufacturing output rose a robust 1.6%M/M, while construction activity surged 6.0%M/M following a cumulative decline of more than 5% in the previous two months. But the detail of the report suggested significantly contrasting performance among the various subsectors. The pickup was underpinned by solid monthly growth in production of pharmaceuticals (21.5%), rubber and plastics (4.9%) and basic metals (3.5%). So, output of intermediate goods rose 1.7%M/M to a post-pandemic high, albeit still 2% below the pre-Covid level. Production of non-consumer durables was some 2½% higher than the February-20 level. In contrast, there was renewed weakness in autos production in January (-5.4%) while manufacturing of computer, electronic and optical products fell for the fourth month out of the past five, likely reflecting persisting disruption from supply bottlenecks. And following warnings from the German Association of the Automotive Industry earlier this week that supply constraints are likely to become more binding in light of the Ukraine conflict, risks to European autos output over coming months look to be firmly to the downside.

This morning will bring euro area retail sales data for January, which are expected to reverse some of the weakness seen in December, as the latest wave of coronavirus cases fell across much of the region and restrictions were eased. Retail sales growth is forecast at 1½%M/M following the 3.0%M/M decline previously, which would leave sales up 4% compared to their pre-pandemic level in February 2019. Construction PMIs for the euro area and larger member states for February are also due, alongside updated Italian Q4 GDP numbers, which will include the first official expenditure breakdown.

UK car registrations to remain subdued on persisting supply bottlenecks
A relatively quiet end to the week for UK economic releases, with the latest car registrations for February likely to confirm that supply bottlenecks and the associated weakness in production in the autos sector likely kept new sales well below the pre-pandemic levels. While initial reports this morning suggest that sales were 15% higher than a year ago, this principally reflected a particularly low base a year ago when car showrooms were closed. Indeed, this still marked the third-lowest February reading since the series began in 1962. So, registrations were still down by roughly one quarter compared with the pre-pandemic level. While this principally reflects the persisting global shortage in semi-conductors, the recent hit to consumer confidence and declining real incomes might also impact demand in due course. Today will also bring February’s construction PMI. Having risen to a six-month high of 56.3 in January, the activity PMI should point to ongoing expansion in the sector, although persisting supply constraints and extreme weather in the second half of the month might limit any further recovery.

US labour market report the data highlight
Attention in the US will be on this afternoon’s labour market report. Consistent with a solid ADP employment number earlier in the week (475k), Daiwa America’s Mike Moran expects growth in non-farm payrolls to come close to the 467k average of the prior 12 months, but rising labour force participation could leave the unemployment rate unchanged at 4.0%. Average labour earnings growth is expected to moderate only slightly from January’s 14-month high of 0.7%M/M, back to the average of the past nine months of 0.5%M/M.