Wednesday’s the busiest day this week for economic reports, including the monthly update on the UK labour market. Later, we’ll see two key numbers for the US: the January data on housing construction and industrial production.
UK: Labour Market Report (0930 GMT): Consumer prices at the headline level increased 0.3% in January – the strongest pace in a year, according to yesterday’s monthly update from the government.
The slightly higher gain marks the third straight month of firmer pricing. Is that a clue for thinking that the first interest-rate hike in years is closer than previously assumed? Probably not, although a robust report for today’s labour market release would certainly fan the flames of speculation.
As for the latest inflation data, the 0.3% year-over-year advance through last month is still far below the Bank of England’s 2% target. Core inflation is higher, although the current release shows that consumer prices ex-food and energy eased to 1.2% against the year-earlier level. In short, the latest round of data still offers the central bank room to delay rate hikes for some time.
Will today’s data on the labour market offer a similar message? That’s a reasonable guess at this point. For perspective, consider the claimant count numbers in recent history. Over the past eight months this key indicator has been treading water.
Over the past eight months UK job claimant numbers have been treading water.
The last two updates reflect modest declines in new filings for jobless benefits. But the dips are relatively small these days. As a result, this indicator implies that the peak in labour market improvements has passed.
A surprisingly strong break with recent history on the upside could trigger a reassessment for the subjects of rate hikes and the economic outlook. But if the data du jour is anything like the updates of recent vintage, today’s claimant count figures will reaffirm the view that there's no rate hike on the near-term horizon.
US: Housing Starts (1330 GMT): Sentiment in the home building industry unexpectedly cooled in February. The Housing Market Index (HMI) dipped to 58 this month. That’s still well above the break-even 50 mark and so the current reading continues to signal growth. But the latest dip also leaves HMI at its lowest level in nine months.
Is the dip in HMI an early clue that housing's modest recovery is on track to decelerate further in the months ahead? Today’s update on residential construction activity in January will be widely read in search of an answer, or at least some fresh perspective.
Note, however, that the January HMI report was moderately stronger than yesterday’s February update and so the lagging starts as data may not reflect any weakness that’s showing up in this month’s sentiment profile.
In any case, the crowd’s looking for a modest improvement in starts for today’s January release. Econoday.com’s consensus forecast sees construction rising to 1.175 million units from 1.149 million in December (seasonally adjusted annual rate).
That decent gain that would push starts closer to last summer’s post-recession high of 1.211 million. But in the current climate, when macro worries are again at the fore, a downside surprise in today’s update for housing would heighten concern that HMI’s implied message of a housing slowdown is already showing up in the hard data for construction.
US: Industrial Production (1415 GMT): Of all the major economic indicators, industrial production is the weakest. In the December update, year-on-year output contracted for the second straight month. Production slumped 1.8% in 2015’s final month against the year-earlier level – a moderately deeper decline against November’s slide. As a result, industrial activity was the weakest at last year’s close since the last recession.
The good news is that economists are expecting a rebound for January’s monthly comparison. Econoday.com’s consensus forecast projects a 0.4% increase in output. If so, the news will mark the first monthly increase since last August. The bad news is that the projected rise still translates into a 1.1% year-over-year decline.
In other words, even an optimistic view for today’s report recognises that the annual trend will print negative for the third consecutive month. Based on this indicator, recession risk is elevated for the US.
One reason for thinking that the suffering state of industrial activity isn’t the death knell for US growth: economic activity in this year’s first quarter is expected to accelerate, based on the Atlanta Fed’s GDP nowcast (as of February 12). The Fed bank’s current forecast sees GDP rising 2.7% - up sharply from the tepid 0.7% increase in Q4.
The question is whether today’s update on industrial activity will take a toll on the Atlanta Federal Reserve’s upbeat outlook?
Disclosure: Originally published at Saxo Bank TradingFloor.com