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a09ba7097c26b358a17669fb0b18709745d6c384ebcae086a2a9cf738358925f;;[{"layout":"detailed","uid":29048,"publicationDate":"10 Mar 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184746.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJGlpiFwyM1XC7te1pmBOUjM=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US payrolls: The chances of a soft-landing rise","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy added a very robust 311k jobs in February after the surge of 504k in January. Payroll gains over the previous two months were revised down a net 34k, but it didn\u00b4t stop the three-month average rising to 351k. This is considerably more than the around 100k per month gain that we estimate would be required to keep the labor market steady i.e. to absorb new entrants and not lead to a rise in the unemployment rate.<\/li><li> In the event, the unemployment rate rose to 3.6% from a 54-year low of 3.4%. This was partly due to a rise in labor force participation, which was larger than the rise in household employment. The rise in the participation rate by 0.1pp to 62.5% is welcome news. It was driven by those aged 16-24 and 25-54, while the participation rate of those aged 55+ continued to fall.<\/li><li> Arguably the single most important data point is the moderation in average hourly earnings (AHE) growth to 'only' 0.2% mom (or 2.9% annualized), down from 0.3% mom in January. In year-on-year terms, AHE growth rose to 4.6% from 4.4%, but it was entirely due to a base effect. We had warned before today\u00b4s release that a likely fall back in average weekly hours (which in the event did fall to 34.5 from a downward-revised 34.6 in January) could have mechanically pushed up monthly AHE growth as some pay is recorded monthly and simply divided by average hours worked to yield the AHE amount. In this respect, the moderation in AHE growth looks particularly impressive. Annualized AHE growth has averaged just 3.1% over the last two months, which is broadly in line with its pre-pandemic average and inside the 3-3.5% range that many Fed officials consider to be consistent with the inflation target. Still, it is only two months, and the Fed will want to see whether such pay moderation is sustained.<\/li><li> The Fed will almost surely welcome the moderation in pay growth, and the rise in both unemployment and participation, which points to the labor market becoming better balanced. And, with payroll gains remaining strong, it somewhat increases the chances of a soft-landing. In our view, this favors the Fed hiking by 'only' 25bp at its meeting on 21-22 March, in line with our forecast, and not accelerating the pace of rate hikes. Earlier this week, in his testimony to Congress, Fed Chair Jerome Powell said the central bank was 'prepared' to re-accelerate the pace of rate hikes, but this was conditioned on the key incoming data surprising to the upside, and he said no decision had been taken regarding the size of the hike at its March meeting. Of course, the February CPI report to be released on Tuesday, and other data due for release next week, could materially change the picture, but we don\u00b4t think it will. Recent market turmoil related to bank stress is also likely to favor a more gradual approach by the Fed.Chart 1 shows that nonfarm payrolls rose 311k in February, an easing from the 504k surge in January. The three-month average change rose slightly to 351k from 344k in the prior month, while the six-month average fell slightly.CHART 1: STILL ROBUST PAYROLL GAINS<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Daniel","last":"Vernazza","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=36&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=9cd2c54b797ddd33a22d9a5ea50fac10"}],"countries":[{"name":"United States","ticker":"US","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=42&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=7bc8e05d14fb73ad6fbafeda31d249b7"}],"hash":"a09ba7097c26b358a17669fb0b18709745d6c384ebcae086a2a9cf738358925f","available":"0","settings":{"layout":"detailed","size":"default","showanalysts":"2","showcompanies":"2","showcountries":"2","showcurrencies":"2","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"300","synopsisexpand":"1","shownav":"0","oldestedition":"","limit":"5"}},{"layout":"detailed","uid":28942,"publicationDate":"10 Feb 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184605.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJKqnvtMyyPsZF8giPRZ3RfM=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - How Brexit has diverted eurozone trade","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Our Chart of the Week shows the huge impact of Brexit on eurozone export volumes to the UK. The total effect has come in two stages. First, the rolling uncertainty generated by the Brexit vote on 23 June 2016 meant eurozone export volumes to the UK fell by more than 10% between 2Q16 and the time when the UK formally left the EU on 31 January 2020. Over the same period, total extra-eurozone export volumes rose by about 4% and intra-eurozone export volumes rose by over 2%.<\/li><li> Second, while the onset of the COVID-19 pandemic shortly after the UK left the EU initially made it difficult to track the impact of Brexit, as the effects of the pandemic have faded the trade diversion effects of Brexit have become clear. Since 4Q19, total extra-eurozone export volumes have moved slightly higher but, within this, exports to the UK have fallen by a staggering 16%. Exports within the EU bloc have risen by almost 9%.<\/li><li> For the EU, Brexit has caused trade diversion away from the UK and towards the rest of the world, but with seemingly little effect on total eurozone exports. In contrast, the UK has experienced lower overall trade flows reflecting the importance of the EU market to the UK. This reduced openness has weighed on business investment and productivity. Last week, the Bank of England in its February Monetary Policy Report said 'the impact on trade has occurred somewhat more quickly' than it previously thought and, accordingly, lowered its productivity growth estimates over the next few years. This reduced supply potential of the UK economy has contributed to higher inflation.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Daniel","last":"Vernazza","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=36&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=9cd2c54b797ddd33a22d9a5ea50fac10"}],"countries":[{"name":"United Kingdom","ticker":"GB","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=13&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=843145e4509f2c82a91a78ecdc0fdf99"},{"name":"Euroland","ticker":"","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}]},{"layout":"detailed","uid":28918,"publicationDate":"03 Feb 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184576.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPTZqM8tbM-RPDejxtHxz3o=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US labor market: hot, but unlikely as hot as the headline suggests","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy added an impressive 517k jobs in January, far higher than expected. What\u00b4s more, payrolls in the prior two months were revised up a net 71k. The Bureau of Labor Statistics (BLS) undertook its annual benchmark revisions and updated seasonal factors, but from what we can tell (comparing the old seasonal factors with the new ones), the surge in January cannot be explained by changes to the seasonal factors (for, example, payrolls in January 2022 were revised down). Still, it is difficult to reconcile the acceleration in payrolls ' it was the largest monthly gain since July 2022 ' with other labor market indicators that point to an ongoing softening, such as the rise in Challenger job cuts. Job gains in January were broad-based but driven by leisure and hospitality, professional and business services, and health care.<\/li><li> The unemployment rate fell 0.1pp to 3.4%, which is the lowest reading since 1969, and this despite a slight rise in the participation rate to 62.4% from 62.3%. This is because household employment (an alternative measure of employment computed from the household survey) surged 894k. Now, this surely overstates the one-month rise, because it can be attributed to the use of new population controls in January by the BLS. Indeed, the BLS does not revise historical data for the new population controls, so it can lead to these big one-month effects. After removing the population control effect, household employment would have risen just 84k. Importantly, however, the level of the unemployment rate should not be affected by this.<\/li><li> Despite the surge in hiring, average hourly earnings growth eased slightly to 0.3% mom (or 3.7% annualized), down from (upward-revised) growth of 0.4% mom in December 2022. The three-month-on-three-month annualized growth rate rose slightly to 4.7% in January, up from 4.6% in December 2022. It is still too high to be consistent with the Fed\u00b4s inflation target, which would likely require pay growth to be in the region of 3-3.5%.<\/li><li> The Fed is likely to treat the January jump in payrolls with some skepticism, given other indicators point to an ongoing gradual softening in the labor market. They will want to see whether the strength remains in the February report. Nonetheless, and along with the rebound in average weekly hours worked, it suggests the labor market is still running hot, too hot for the Fed\u00b4s liking. The strong labor market and the rebound in the ISM non-manufacturing index give the Fed the flexibility to keep hiking rates. Anyone that thought the Fed might stop hiking as soon as its March meeting are likely to be disappointed on this evidence. We continue to expect the Fed to hike by 25bp at each of its next two meetings in March and May, taking the target range for the federal funds rate to 5.00-5.25%, which we expect to be the peak.Chart 1 plots monthly payroll gains along with the 3-month and 6-month average monthly change. Payrolls rose 517k in January, the biggest monthly gain since July-2022.CHART 1: PAYROLLS ACCELERATED IN JANUARY<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Daniel","last":"Vernazza","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=36&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=9cd2c54b797ddd33a22d9a5ea50fac10"}],"countries":[{"name":"United States","ticker":"US","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=42&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=7bc8e05d14fb73ad6fbafeda31d249b7"}]},{"layout":"detailed","uid":28879,"publicationDate":"26 Jan 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184517.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPTZqM8tbM-RZIPE42Et1QI=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Data Comment - US 4Q22 GDP boosted by inventories and trade; contraction likely in 1H23","titleDe":"","titleIt":"","product":"Data Comment","synopsis":"<ul class=\"ucrBullets\"><li> The US economy expanded a strong 2.9% qoq annualized in the final quarter of last year, after 3.2% growth in 3Q22. It completes a roller-coaster ride in 2022, with output falling in the first half of that year and then rebounding in the second half. This volatility was largely driven by changes in inventories and trade flows, which tend not to be enduring sources of growth. Looking through this volatility, growth slowed through last year, reflecting the effects of high inflation (on real incomes) and tighter monetary policy. Most of the effect of the latter on economic activity is still to come, given the lags.<\/li><li> GDP in 4Q22 is a case in point, with the change in inventories and net exports together contributing more than 2.1pp of annualized GDP growth of 2.9%. Real final sales to domestic purchasers, which is GDP excluding net exports and the change in inventories, rose just 0.8% annualized in 4Q22, a slower rate of increase than the 1.5% in 3Q22 and less than half our estimate for potential growth of around 1.8%. The rise in inventories will weigh on GDP growth in the first half of this year, with retail inventory-to-sales ratios well above pre-pandemic levels for many goods.<\/li><li> It\u00b4s true that personal consumption rose a decent 2.1% annualized in 4Q22, only slightly slower than the 2.3% rise in 3Q22. But this largely reflects a run-down of the stock of excess savings, with the personal savings rate, at 2.9% in 4Q22, at historically low levels. The excess savings of those in the lowest quintile of the income distribution have now been exhausted, so it seems likely that spending will falter soon, and the sharp decline in retail sales for December is consistent with this. In 4Q22, personal spending on goods and services rose, but more so for services, with higher interest rates weighing on the purchases of durable goods (in a separate report today, durable goods orders excluding transportation goods fell 0.1% mom in December). Fixed investment fell sharply in 4Q22, driven by a 27% annualized drop in residential investment amid a slump in housing market activity. Non-residential investment (essentially business investment) rose just 0.7% annualized, with spending on equipment falling (in a separate release today, capital goods orders ex. defense and aircraft fell 0.2% mom in December, which is a good proxy for spending on equipment). Government consumption rose strongly in 4Q22, largely driven by non-defense federal spending.<\/li><li> The 4Q22 GDP report is unlikely to change the Fed\u00b4s thinking. It will likely read the report as further evidence that underlying growth is slowing, and this is likely to lead to a further softening in labor demand. In another release today, continuing jobless claims continued their gradual rise, while initial jobless claims fell again to 186k in the week ending 21 January, which is below pre-pandemic levels. It suggests, and in line with other surveys, that hiring has eased but firms remain very reluctant to lay off workers. Ahead, we continue to expect a mild contraction in GDP in 1H23. The build-up of inventories, coupled with the sharp decline in the ISM services new orders index for December and a weak Beige Book for January, have increased our conviction somewhat. Chart 1 shows quarterly GDP growth was on a roller-coaster ride in 2022, with output falling in 1H22 and then rebounding in 2H22. Ahead, we expect a mild technical recession in 1H23. CHART 1: WE STILL SEE A MILD RECESSION AHEAD<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Daniel","last":"Vernazza","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=36&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=9cd2c54b797ddd33a22d9a5ea50fac10"}],"countries":[{"name":"United States","ticker":"US","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=42&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=7bc8e05d14fb73ad6fbafeda31d249b7"}]},{"layout":"detailed","uid":28859,"publicationDate":"20 Jan 23","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2023_184492.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBvimKyO_G2i95sRNqcwUK4=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - US core services inflation: it\u00b4s about more than wages","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>Many Fed officials, including Chair Jerome Powell, have said that they are paying particular attention to one category of prices, namely 'non-housing core services'. There are three main reasons for this. First, price inflation for this category has tended to be stickier than that of other categories. Second, it has the largest weighting in the core PCE basket. Third, the other categories of core inflation are either already showing clear disinflation (core goods) or shortly will (average rents, with new rents falling for four consecutive months according to Apartment List). Therefore, the development of non-housing core services inflation could hold the key to determine the time when the Fed may stop hiking interest rates.<\/li><li>Our Chart of the Week shows that non-housing core services inflation (solid black line) has yet to show a clear downward trend. The chart plots two potential drivers of non-housing core services inflation: productivity-adjusted wages or unit labor costs (red line), and producer prices for goods including energy and food (dashed black line). Fed officials have in recent weeks highlighted the importance of the former, and hence labor market tightness, for the outlook for non-housing core services inflation. This is because wages are typically the largest cost for firms providing these services. However, the chart shows that rising non-housing core services inflation has closely followed that of PPI goods inflation. It suggests the indirect effects of rising prices for energy, food and other goods were an important driver. Given ongoing disinflation for PPI goods, we might see a somewhat faster descent in non-housing core services inflation than the Fed is expecting.<\/p><\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Daniel","last":"Vernazza","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=analyst&tx_research_piedition%5Banalyst%5D=36&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=9cd2c54b797ddd33a22d9a5ea50fac10"}],"countries":[{"name":"United States","ticker":"US","link":"https:\/\/www.unicreditresearch.eu\/index.php?id=country&tx_research_piedition%5Bcountry%5D=42&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=7bc8e05d14fb73ad6fbafeda31d249b7"}]}]


Daniel Vernazza, Ph.D.
Chief International Economist
UniCredit Bank AG, London
Moore House
120 London Wall
UK-EC2Y 5ET London
United Kingdom
+44 207 826-7805

Daniel Vernazza joined UniCredit in March 2013 as an economist. He previously worked in the economics department at Goldman Sachs and taught economics at the London School of Economics (LSE) for th...

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