Japan’s unemployment rate dropped amid stronger jobs growth, but new job offers dropped sharply in June
The latest Japanese labour market report offered mixed messages about the strength of jobs growth in June. Encouragingly, the number of people in employment rose a sizeable 190k in June, the largest monthly increase since December 2021, to 67.55mn. Admittedly, the monthly profile is often volatile. But this still left the number of people employed up 260k compared with a year earlier, with particular strength in the medical, hospitality, construction and manufacturing sectors. Indeed, when excluding self-employed, the number of employees jumped 310k in June, to 61mn, a fresh high and some 610k higher than a year ago. So, despite an increase in labour force participation, the unemployment rate fell 0.1ppt to 2.5%, a five-month low, but nevertheless still 0.3ppt above the pre-pandemic low. The female unemployment rate dropped 0.3ppt to 2.1%, the lowest since 2019, but this partly reflected a drop in labour force participation. The near-term outlook for jobs growth was clouded by a further modest deterioration in the job-to-applicant ratio, which fell for the fifth month out of the past six to 1.30, the lowest in a year, but nevertheless still consistent with a relatively tight labour market. While the number of job offers in the market moved sideways, they were the lowest in a year, with new job offers down almost 3%M/M in June.

Japan’s manufacturing PMI flags ongoing weakness in output but still firm output price pressures
While the final Japanese manufacturing PMI release saw the output component revised slightly higher from the flash estimate, at 48.9 it was still consistent with ongoing contraction in the sector at the start of Q3. Indeed, despite a further easing in supply constraints, manufacturers flagged weaker demand, with the survey’s new orders index (48.6) implying the steepest decline for three months. And so, despite a further decline in firms’ purchases of input materials, the PMIs offered further evidence of pre- and post-production stockpiling. Amid weaker demand and lower cost burdens, input price pressures continued to moderate in July, with the respective index to its lowest since February 2021. But the output price PMI merely moved sideways and at 55.2 remained well above the long-run average (48.7) suggesting that manufacturers are continuing to pass on higher costs to consumers.

Euro area unemployment rate expected to remain at a series low
Today will bring euro area unemployment data for June, with the headline rate likely to remain unchanged at the series low of 6.5% for a third successive month to provide a reminder that the labour market remains tight. German jobless claims data for July are also due, with the anticipated further increase of 20k – broadly in line with the average since March – expected to leave the claimant count rate unchanged at 5.7%. Meanwhile, like in the other major economies, the final July manufacturing PMIs are also due and are likely to highlight ongoing weakness in the sector. According to the flash estimates, the euro area output PMI fell for the fourth successive month and by 1.2pts to a highly contractionary 43.0. In addition, the new orders PMI fell below 40. And strikingly, the input cost (35.5) and output price (44.6) PMIs suggested significant disinflation in the sector. The Spanish survey results for July, just published, reported a notable weakening in output in July, with the respective index down 1.8pts to 47.6, a six-month low, with a substantial contraction in domestic and overseas orders too. The Italian survey results will also be released for the first time.

UK shop price inflation down to lowest since December with prices down in several key items; UK house prices edge lower in July as higher rates continue to bit
According to the BRC survey, UK shop price inflation fell in July to an eight-month low, dropping 0.8ppt to 7.6%Y/Y. Notably, the BRC also reported that prices fell compared to the previous month the first time in two years. The declines in prices were led by clothing and footwear, for which the BRC measure of inflation dropped 1.1ppt to -1.3%Y/Y as retailers responded to inclement weather with additional discounting. Encouragingly, food price inflation also slowed more than 1.0ppt to 13.4%Y/Y, the lowest level since December, with falling prices across several key staples. The survey measure of prices of electrical items was also down on the month, suggesting to a welcome dampening impact on UK inflation from developments in global goods prices.

According to Nationwide, UK house prices fell 0.2%M/M in July to the lowest level since March. Compared to a year earlier, prices were down 3.8%Y/Y, the steepest rate since 2009. With rates on new mortgages sharply higher over recent months and lenders having reduced availability of products, data released yesterday reported the weakest flow of net mortgage lending on a three-month basis (-£1.1bn) since the series began in the early 1990s. And while the number of mortgage approvals rose more than expected in June, to an eight-month high of 54.7k, it remained well below pre-pandemic norms. Expect house prices to continue to sag over coming months as affordability remains stretched in the face of higher mortgage rates.

As in the euro area, today will bring the final UK manufacturing PMIs for July. According the flash estimates, the output index fell 1.6pts to an eight-month low of 46.5, suggesting significant contraction. The new orders PMI dropped to 44.0, its lowest level since December. And, as in the euro area, the input cost (43.8) and output price (49.0) indices signalled disinflation.

US data focus on manufacturing, construction and job openings
In the US, a busy day for economic data will bring insights from manufacturing, construction and the labour market. The ISM manufacturing survey is expected to remain in contractionary territory with the prices paid index also likely to remain consistent with ongoing disinflation in the sector. Daiwa America’s Lawrence Werther forecasts the headline survey index to rise just 0.5pt to 46.5. But construction output data are expected to report a sixth successive month of growth in June, supported by increased activity in housing, business structures and building by state and local governments. Lawrence forecasts growth of 1.0%M/M. Finally, the JOLTS report for June is expected to report a second successive monthly drop in job openings to about 9600k, which would be the lowest since April 2021 albeit still well above pre-pandemic norms.