Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US economy adds more jobs than expected in June but unemployment rises
The closely watched US nonfarm payrolls indicator showed that the US added 850,000 jobs in June, above economists’ expectations of an increase of 706,000. However, this was not enough to stop unemployment rising from 5.6% to 5.9%, although this seems to be a compositional effect of the data concerning those employed in part time work and can’t necessarily be interpreted as a negative. The participation rate stayed unchanged at 61.6%. Overall, total employment remains 7.13 million below where it was at the start of the pandemic.
The hospitality sector continued to be the prime beneficiary of the vaccination rollout and the reopening of the economy. The industry added 343,000 jobs in June, mainly in bars and restaurants. Rising job growth also resulted in increasing wage gains, as average hourly earnings increased 0.33% for the month and 3.6% over the previous 12 months. We are watching wage growth closely at the moment, as the indicator likely to lead to a sustained, reinforcing cycle of higher prices in the US which would in turn translate into tightening monetary policy.
US manufacturing growth passed its peak but price pressures build
The US ISM manufacturing survey dropped slightly suggesting that the pace of the economic recovery has now passed its peak and will likely moderate further from here. The index fell from 61.2 in May to 60.6 in June, the lowest level since January. The success of the vaccination rollout and reopening of the economy has led to an increased demand for manufacturing goods and, while demand remains strong, momentum seems to be slowing.
The data also revealed that manufacturers continue to experience higher input prices, resulting from higher commodity prices, higher freight costs and shortages in key materials. Another interesting result of the survey was that factor employment slipped into contractionary territory for the first time in 6 months, indicating the difficulty of manufacturers when trying to fill vacant positions.
Japan Tankan survey indicates expanding manufacturing but stagnant services
The Bank of Japan’s Tankan Index - which surveys large manufacturers on their prospects on current and future conditions – rose from +5 to +14 in the second quarter of the year, signalling a robust expansion in output. The services sector survey was disappointing however, only rising from -1 to +1. A positive value indicates improving economic conditions while a negative value indicates a worsening set of conditions. Japan has struggled with rising COVID-19 cases for most of 2021 and the disconnect between manufacturing and services sectors seems to reflect how regional and national restrictions have reduced travel and consumer activity.
Underlying the headline index, the survey pointed to a dispersion within manufacturing. Sectors most exposed to China, such as production machinery and electrical machinery, were most positive on economic conditions. In contrast, Japan’s large automotive industry fell back from +10 to +3, likely reflecting concerns over semiconductor shortages.
Global equity markets continued to make new highs over the course of last week as technology continued to perform. Emerging markets were dragged lower over the week largely due to the effects of stronger dollar but also on the impact of new regulatory action on Chinese tech. To the former, June represented the strongest month for the Dollar since November 2016, reflecting the more hawkish stance taken by the US Federal Reserve and indication that monetary tightening may be brought forward. Elsewhere, within commodities, an unusually public disagreement between Saudi Arabia and the UAE lead to a further increase in the price of Oil, as the two OPEC+ nations disagreed over the proposed extension of the current supply agreement.
Look out for next week’s update, where we’ll be focusing on China PMIs and the Fed minutes.
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