Data watch: Manufacturing and jobs

US

Last week in the US, Personal Spending (MoM) recorded its biggest monthly gain in eight years in September, climbing by an impressive 1%. This was primarily driven by hurricane-related consumption, with flood-damaged motor vehicles being replaced in Florida and Texas.

Core Personal Consumption Expenditures (PCE), an inflation measure, which excludes food and energy, reconfirmed that the Fed's 2% target remains elusive. Prices rose by 1.3% in September year-on-year which matched forecasts. Assuming the labour market remains tight and wages continue to rise, the Fed will expect an uptick in inflation in 2018.

Elsewhere, CB Consumer Confidence soared to a near-17-year high, the ISM Manufacturing PMI (Purchasing Managers' Index) lost a little ground, and private sector employment figures beat forecasts, while Friday's Non-Farm Payrolls came in well below expectations at 261,000 new jobs added to the US economy in October.

On the rates front, the Fed Interest Rate Decision kept rates on hold at 1.25% but a third quarter point rise for 2017 is expected in December. The FOMC Statement reaffirmed the Fed's positive economic stance, talking in terms of robust GDP growth and the strengthening employment backdrop.

UK

We heard that manufacturing growth continued its upwards trajectory in October, the 15th consecutive month of expansion. The IHS Markit/CIPS Manufacturing PMI rose by 0.3 points in October, leading sterling higher against the greenback. House price growth moved slightly higher in October on a month-by-month basis.

History was made on Thursday, with the Bank of England (BoE) Interest Rate Decision leading to the first hike in a decade. Base rate now stands at 0.5%, reversing the post-Brexit emergency cut in August 2016.

Sterling tumbled against the dollar and euro, as the market digested the dovish tone of the Bank's statement. Reiterating that debt servicing costs would remain "…historically very low", the central bank referred to future rate hikes as being "…at a gradual pace and to a limited extent."

BoE's Governor Carney Speech reflected this sentiment about future interest rate direction, referring to a "…gently rising path" over a three year forecast period. The Governor confirmed that current market yields provided grounds for two further quarter point rate rises over a three-year period.

Two key releases for the week beginning 6th November

UK

Friday 10th November: Manufacturing Production

As the name suggests, Manufacturing Production assesses the total manufacturing output produced by the economy on both a monthly and annual basis. The economic indicator is produced by the Office for National Statistics (ONS) and is adjusted for inflation to present a more accurate picture of productivity.

Considering that manufacturing represents approximately 80% of overall industrial production and a significant proportion of overall GDP, this release acts as a key short-term indicator of UK manufacturing strength. As with the vast majority of releases, a high reading should support the pound whereas a lower reading could drive currency weakness.

Despite the cloud of Brexit inhibiting the sector, manufacturing production output is defying this uncertainty with modest expansion since May. In August, output moved 2.8% higher on a year-on-year basis, exceeding expectations by 0.9%.

These relatively bullish figures ensured a 0.9% uptick in the Office for National Statistics' index of production, although a 6% annual contraction in the mining and quarrying sub-sector created headwinds.

On a month-on-month basis, manufacturing output increased by 0.4% in August. This expansion is forecast to continue when September's figures are released this week, with the annual and monthly projections 2.4% and 0.3% respectively.

US

Tuesday 7th November: JOLTs Job Openings

This survey is conducted by the US Bureau of Labor Statistics by assimilating data from companies relating to employment, recruitment, job opportunities, hires and separations. Jobs are considered to be 'open' if the role has not been filled on the last business day of the month. However, three additional criteria have to be met for the position to be incorporated into the official figures.

Firstly, a specific position must be identifiable with associated work available. Secondly, the role could commence within 30 days, irrespective of whether the position is actually filled within that period. Finally, the recruitment process must not be restricted to internal appointments only and should be advertised externally. The survey analyses approximately 16,000 business across private and public non-farm sectors.

Despite being very volatile, the report is important for the following reasons:-

• In essence, it quantifies demand for labour and by extension, comments on the health of the economy.

• It can act as an indicator of planned corporate activity. If companies plan to increase production, the increased demand for employees should see a corresponding rise in openings.

• As the survey assesses new workforce needs, economists can use the data to make inferences about the supply-demand balance. If demand greatly exceeds supply, wages may rise to attract new employees, ultimately translating to higher levels of consumption and inflation.

• As a forward indicator of economic health, the JOLTS survey will be taken into account by the Fed in shaping interest rate direction.

• Long-term data trends in the survey can enhance investors' understanding of the sectors they have exposure to.

• The report also comments on how many employees voluntarily tender their resignation. An increase in resignations may indicate higher levels of optimism about the economy and securing a better position. However, if this is sector-specific, it may point towards concerns about the future prospects of a given industry.

In August, job listings fell to 6.082 million from July's record highs of 6.17 million. Hires and separations remained fairly static, coming in at 5.4 million and 5.2 million respectively.

Commenting on separations, the Labor Department noted that the quits rate and the layoffs and discharges rate were "…little changed".

Analysts pointed towards the hurricanes as driving the reduction in hiring rates, but note that the 0.1% fall in the quit rates could be indicative of falling confidence in the job market.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.