- UK jobless rate to remain at 4.8% while the claimant count is set to rise
- US retail spending growth should slow in November, but annual pace is steady
- A Fed hike is expected today; will the central bank may raise growth estimates too?
- Markets are upbeat about 2017, based on hopes for the Trump administration
- But economists don’t share the upbeat assumptions for next year
The markets are pricing in a rate hike for today’s policy announcement from the Federal Reserve, which will also publish a new set of quarterly forecasts, followed by a press conference with Fed Chair Janet Yellen. It’s a busy day for fresh data otherwise, including new November figures for the UK labour market and retail sales in the US.
UK: Labour Market Report (0930 GMT): Inflation touched a two-year high last month, suggesting that one aspect of the Brexit blowback is finding a bit more traction in Britain’s economy. Will unemployment start ticking up too, as some forecasters have warned?
No, at least not in today’s labour market report for November. Econoday.com’s consensus forecast sees the jobless rate holding steady at a low 4.8%. Nonetheless, the number of workers seeking unemployment benefits has been rising this year and today’s update is expected to offer more of the same.
The crowd’s looking for a rise of 6,000 in claimants for November. Although that’s down from October’s 9,800 increase, another gain will mark the fourth straight monthly advance. In fact, the claimant count has climbed in every month so far in 2016 save July.
The labour market’s growth, in short, appears to have passed its peak, as implied by the net rise in claimants. For now, the directional change isn’t lifting the jobless rate. But if the claimant count continues to increase, it’s just a matter of time before the jobless rate follows.
How might such a change influence the outlook for monetary policy? Inflation may be a complicating factor. Consumer prices increased 1.2% in the year through last month, the fastest rate in two years. As such, the central bank’s standard policy response to a higher jobless rate – stimulating growth with additional monetary liquidity – may be problematic in 2017.
"Inflation was clearly a little bit stronger than expected, and with the Bank of England meeting later this week, it will be interesting to see to what extent they are concerned about inflation," noted an analyst at Rabobank.
US: Retail Sales (1330 GMT): The monthly growth rate for consumer spending is expected to slow for a second month in today’s November report on retail sales, but the annual trend is on track to hold steady at a healthy pace.
Econoday.com’s consensus forecast calls for a 0.4% increase in spending, down from the strong 0.8% gain in October and September’s 1.0% surge. But if today’s forecast holds, the year-over-year increase through last month will remain steady at a 4.3% pace. In that case, the annual trend will rise the most in two years.
An encouraging trend doesn’t surprise the economists at Wells Fargo, which last week advised that the outlook on this front remains bright. “We see consumer spending growth on continued job and wage gains and improved business spending as the energy drag dissipates,” the bank wrote on Friday.
Today’s release is expected to reaffirm that view, and in turn give the Federal Reserve another reason to announce a rate hike in today’s monetary policy statement.
US: Federal Reserve Interest Rate Decision and Economic Forecasts (1900 GMT) and Press Conference (1930): The Fed is widely expected to raise interest rates today. The bigger mystery: how will today’s revised economic forecasts stack up in the central bank's first official outlook since Donald Trump’s election victory?
From the perspective of the stock market, expectations for 2017 have turned considerably brighter: the S&P 500 touched a record high in mid-day trading on Tuesday. The rationale for the market’s recent pop: expectations that the incoming Trump administration will deliver a pro-growth policy mix via tax cuts, lighter regulation, and infrastructure spending.
Note, however, that the many economists don’t yet share the market’s upbeat assumptions for 2017. As I discussed yesterday, a range of GDP forecasts for this year’s fourth quarter and beyond continue to assume that US economic growth will slow relative to the 3.2% gain in Q3.
Does the Fed have a different view? The bank's last set of quarterly projections (published in September) downsized the median 2016 GDP growth estimate to a soft 1.8% while keeping the expected annual pace unchanged at 2.0% for 2017 and 2018. Today’s question: Will the Trump factor influence the Fed’s outlook, for good or ill?
Disclosure: Originally published at Saxo Bank TradingFloor.com