Hopes that the fledgling US recovery can develop into something more robust have driven global equity markets higher this month, but they received a setback on Friday after the weaker than expected fourth-
quarter growth figures.
For any guide to the future course of the new year rally, much will depend on this week’s US data releases, particularly Friday’s non-farm payrolls data.
The monthly report on job creation and unemployment in the world’s largest economy is likely to show some retrenchment from December’s gain of 200,000, which was inflated by the temporary hiring of extra retail and delivery staff to cope with the Christmas holiday period.
About 150,000 jobs are expected to have been created in January, while the unemployment rate is expected to hold steady at 8.5 per cent. With recent purchasing manager surveys indicating increasing business activity in manufacturing, services and construction, some employment growth across these sectors is likely.
“We expect to see job growth in industries such as healthcare, professional services, construction, food services and manufacturing,” says Madhur Jha, economist at HSBC.
On Wednesday, the ADP Employment report on jobs growth in the US private sector is expected to show that 185,000 jobs were created.
In the eurozone, the unemployment rate is seen rising to 10.4 per cent in December, having held at 10.3 per cent in November. Statistics released on Tuesday are expected to show joblessness in the periphery of the eurozone outpacing the likes of Germany and France.
The German rate of unemployment in January is expected to hold at 6.8 per cent, reflecting indications in the recent Ifo business sentiment survey that companies were starting to think about increasing the rate of hiring.
Purchasing managers are in action again this week, publishing business activity surveys from the US, UK and the eurozone. Wednesday’s January manufacturing PMIs for all three are likely to show some stark differences. Both the UK and the eurozone’s PMIs are expected to remain in contraction territory: a level below 50 indicates contracting business activity.
“Weaker demand from the eurozone is likely to mean that manufacturing output falls sharply again in 2012,” says Samuel Tombs at Capital Economics.
In the US, however, the manufacturing index is seen climbing to 54.5, from 53.9 in December, the strongest reading since June.
The three service sector surveys, published on Friday, are not expected to show such divergence, with all three remaining in expansion territory, but having stalled in recent months.
As the larger part of the UK economy is service based, this will be a more accurate indicator of whether or not the UK faces recession in the coming quarters and will be much more closely watched than the manufacturing survey.
“We already know that retail sales have contracted sharply in January and soft PMIs will reinforce expectations of further quantitative easing from the Bank of England at the February Monetary Policy Committee meeting,” says James Knightley, senior economist at ING.