Macroeconomics: The Day Ahead for 1 July

Outside of the key US labour data, the remainder of the day’s data schedule is likely to get short shrift, above all given the long Independence Day holiday weekend, which will see US bond markets close early. There are Korea’s CPI and Australia’s Housing Finance to digest, while ahead lie Canada and US Trade. The events schedule is light with the OPEC+ decision on production to mull over, with some risk that no increase in production is agreed after the UAE threw a spanner in what was to be a Aug-Dec 400K per month increase proposal. The UAE is seeking an increase in its baseline production level, which is currently set at its 2018 level (as was the case for all OPEC members except Russia & Saudi, both 11.0 Mln) of 3.16 Mln bbls, and it wants to see raised to its 2020 level of 3.841 Mln bbls. There are also a few ECB speakers. Next week has Services PMIs/ISM, but is quite light on US data (JOLTS), with China CPI & PPI the likely highlight; also scheduled German Orders, Production, Trade and ZEW; UK monthly GDP and raft of monthly activity data, Canada’s BoC Q2 Business Outlook survey; Australia Retail Sales; and Japan Wages, Household Spending and Economy Watchers Survey. In event terms there are June FOMC minutes, RBA (no change) rate decision, EC economic forecast update and a G20 central bank and finance ministers meeting to end the week, with a seasonally lighter schedule of central bank speakers. In passing, the extent of supply chain disruptions in the auto sector were laid bare by yesterday’s sharp fall in US Auto Sales to 15.36 Mln against forecasts of 16.50 Mln and May’s 16.9 Mln, and this will weigh heavily on June headline Retail Sales, despite a favourable seasonable adjustment.

U.S.A. – June Labour market report

The consensus looks for a 720K rise in headline, 610K rise in Private Payrolls, after two months of disappointments, which in theory fits with the ADP Employment gain of 692K, though the gaps between ADP and official measures have been so large as to render any read across redundant; and yesterday’s Initial Claims data give hope for a strong increase in July. The dip to 49.9 in the ISM Employment sub-index, despite strength in orders and output, imparts some downside risk to an expected 25K rise in Manufacturing Payrolls. While the headline Unemployment Rate is expected to fall to 5.6% from 5.8%, the participation rate is seen at an unchanged 61.6% vs. pre-pandemic 63.3%, and the U-6 Underemployment Rate unlikely to fall sharply from May’s 10.2% (vs. pre-pandemic 7.0%). As such, the Fed will be of the view that there remains an enormous amount of labour market slack. It is likely that demographics (above all those retiring), and changing attitudes to what jobs employees want to do will continue to act as a constraint to hiring, and quite widespread reports of skills shortages, which makes the task of assessing what full employment looks like even more difficult. While base effects continue to distort Average Hourly Earnings in y/y, the expected 0.4% m/m follows 0.5% and 0.7% in prior months, and would represent a 3-mth annualized rate of 6.2% for Q2, which for the time being would probably be seen as a catch up Q1’s 0.8%. Critical to any interpretation would be how this interfaces with the payrolls increase for minimum wage type jobs, if the latter were robust, it would have rather greater significance for the Fed, above all if sustained in H2.