By Chris Flood
Published: January 31 2010 16:57
US president Barack Obama’s promise to boost spending on job creation and the big improvement in US economic growth in the fourth quarter has fuelled hopes for a revival in America’s labour market this year.
Employment data for January, due to be published on Friday, are expected to show non-farm payrolls rose 27,000, which would leave the unemployment rate unchanged at 10 per cent.
However, the January release will include some important revisions to the historic data that are likely to show that the fall in US employment since the recession began was larger than previously estimated.
Paul Dales at Capital Economics says the revisions are likely to reveal that US employment has fallen by 9m rather than the present estimate that 7.2m jobs have been lost.
Mr Dales says this is because the payroll survey could be putting too little weight on the tough conditions still being faced by smaller companies, which are continuing to struggle as credit conditions remain tight.
The revised labour market data should also have important implications for the outlook for US interest rates. Most analysts expect the Federal Reserve to begin tightening monetary policy this year, but Capital Economics thinks US interest rates could remain on hold until 2012.
US labour force participation – the number of people employed or actively looking for work – has recorded its largest one-year drop on record with a fall of 1.2 percentage points to 64.6 per cent. Much of the drop is because of younger workers opting for additional education or training.
Andrew Tilton of Goldman Sachs says many of them will begin to look for work, since they have not retired or dropped out of the labour force permanently, so the unemployment rate could rise sharply this year.
“Outright job growth of more than 100,000 per month will soon be needed to keep the unemployment rate from rising further,” Mr Tilton said.
Both the European Central Bank and Bank of England will keep interest rates unchanged at their meetings on Thursday so the main focus will be whether UK policymakers decide to extend their £200bn asset-purchase programme.
The week’s data releases
A calendar of key statistical reports due out over the next seven days from Informa Global Markets
Fourth quarter data showed the UK economy was struggling to escape recession. The risk of a double-dip recession remains significant following the increase in value added tax in January and the disruptions caused by heavy snow nationwide.
The UK has not yet clearly established a sustainable recovery and both the manufacturing and service-sector purchasing managers surveys are likely to show that activity dipped in January because of adverse weather conditions.
However, estimates of economic activity are usually subject to revision, particularly around turning points and inflation is rising so the suspension of the Bank’s asset purchase programme appears likely.
”The fact that the economy could only crawl out of recession in the fourth quarter with markedly less than expected growth of 0.1 per cent has heightened concerns about the strength and sustainability of the UK’s recovery, said Dr Howard Archer, chief european economist at IHS Global Insight.
Dr Archer said that he expected the Bank of England would ”keep the door ajar” by indicating that all policy options remained open and that it would be prepared to act if recovery failed to develop during the early months of 2010.
UK policymakers will have updated growth and inflation forecasts to digest which will undoutedly have a bearing on their decision whether to extend the asset purchase programme or to call a halt.
UK consumer price inflation jumped to 2.9 per cent in December. This has raised concerns that inflationary pressures could be mounting and that the peak for inflation could be higher than the 3 per cent forecast by the Bank of England in November.
Inflationary pressures in the manufacturing sector appear to be rising faster than expected with January’s producer prices, due out on Friday, expected to show the output measure rising from 3.5 per cent in December to 3.7 per cent.
At the start of 2009, the purchasing managers surveys played a vital role in signalling that the global economy was on-track for a recovery just at the time when fears that a prolonged worldwide depression was possible were widespread.
This year, the UK’s PMI survey’s will play a vital role for policymakers’ efforts to assess how well the economy is performing without the aid of quantitative easing.
The consensus forecast for the UK manufacturing PMI survey for January, due out on Monday, is for a marginal fall from 54.1 in December to 54 but the clear risk is a for a sharper decline due to the adverse weather conditions which affected the entire country last month.
The service-sector PMI, due out on Wednesday, has reached its highest level since January 2007 so a modest dip due to the bad weather would not be a surprise. The consensus forecast is for the service-sector PMI to dip from 56.8 to 56.5, indicating a marginal slowdown in th pace of recovery.
Copyright The Financial Times Limited 2010
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