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August 11, 2021
  • Chinese PPI inflation stays strong
  • The underlying weaknesses behind US labour participation

The US Labour Market has moved from strength to strength through the recovery period; this week we look at those strengths, as well as the underlying weaknesses holding back further progress.

On the face of it, the US labour market has gained momentum with every month. In July payroll was up +943k against the consensus and unemployment was down by 0.5% from June reaching 5.4%, also outperforming expectations by 0.3%. Private sector wages and salaries were also up +1%, and+3.5% YoY, marking the fastest increase since the first quarter of 2007. All of this indicates a strong recovery over the past two months.

However, as data from the Bureau of Labor Statistics below indicate, US job openings have hit a new record in June 2021. These vacancies show a clear imbalance in the labour market; while there is clearly huge demand for workers, this kind of number would only show up with significant challenges in the supply side.

One of the key factors in this gap is something that this newsletter has flagged in the past: stimulus payments and enhanced unemployment benefits clearly continue to disincentivise people from returning to the job market, but perhaps just as important as this factor is the issue of childcare. School closures and remote education have led to an increase in childcare responsibility, and this burden has disproportionately fallen on women, keeping them out of the labour force.

The above graph highlights this gender gap in 2021quite clearly, with female participation plateauing as male participation rises. Like much economic activity in the US, this gap, and labour participation more generally, will only return when the Delta variant is finally under control and schools are able to open to full time in-person classrooms. When this occurs, it looks likely that job openings will once again decline, and the US labour recovery will rid itself of one of the key underlying weaknesses.

Chinese PPI inflation stays strong

In July, China’s PPI inflation hit +9% YoY rising from 8.8% in June. This uptick has not been broad based, metals inflation continues to slow, and inflation of non-processing manufacturing has pulled back. Ultimately inflationary pressure keeps PBoC alert towards tighter conditions, but it is still held back by softer consumer activity owing to a pick up in Delta variant infections.

Another cut in RRR is therefore quite likely before the year is out, to help manage interbank liquidity.

Supply side hampers Eurozone manufacturing

The Eurozone’s final manufacturing PMI across the region dipped to 62.8 in July from 63.4 in June. The weakness behind this slide isn’t based on a lack of demand, but rather owing to supply side constraints.We can see this clearly in German car production which has been badly affected even as consumer goods production rose. Similar signs can be read in the Spanish industrial recovery which has stalled, while Italy has escaped these effects thanks to its industrial growth being driven primarily by machinery.

  • Friday, 13th August: The US economy is having a strong recovery, this should be reflected in consumer confidence, charted in this month’s Michigan Consumer Sentiment Index.
  • Monday, 16th August: China’s consumer spending has been affected by the recent surge in the delta variant, the release of July’s YoY retail sales should give a wider context for its impact.

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