ECONOMICS COMMENTARY — Aug 25, 2023
Week Ahead Economic Preview: Week of 28 August 2023
The following is an extract from S&P Global Market Intelligence's latest Week Ahead Economic Preview. For the full report, please click on the 'Download Full Report' link.
Global manufacturing PMI, US payrolls and eurozone inflation
The US August labour market report will be released next week alongside comprehensive manufacturing PMI data across the world. Additionally, the focus will be on inflation numbers from the eurozone, Germany and parts of Asia. India will also be releasing their GDP data for the April to June quarter.
Ahead of the highly anticipated Jackson Hole symposium this week, the market remains watchful of any data which challenges the 'soft landing' scenario. In that respect, US consumer spending had notably been a key concern at the start of the week following disappointing earnings reports from retailers, thereby weighing on risk sentiment. PCE data due during the week will be important to assess, as will the second estimate of second quarter GDP, the initial estimates of which had surprised to the upside to encourage further Fed hawkishness.
Flash PMI data further alluded to a stagnating labour market in August, both in the US and Europe, validating some concerns with regards to consumption as well as raising hopes of moderating wage growth. Next week's non-farm payrolls figures will provide official insights into the US job market trend. Wage growth data will also be closely watched given the importance of rising staff costs in contributing to stubborn inflation thus far.
On prices, updated official CPI numbers for the eurozone, including Germany, will also be due in the week ahead. These data come after the HCOB Flash Eurozone PMI indicated rising inflation in the eurozone. The latest developments outlined the risk for stubborn inflation especially at a time when the downturn for the eurozone also deepened midway into the third quarter, creating greater uncertainty with regards to the monetary policy trajectory.
In APAC, PMI releases will be closely watched in the coming week, especially for mainland China, which saw a weak start to the third quarter. Any extended slowdown will weigh on the region and would not bode well for risk assets. In contrast, India had been an outperformer up until July and any extension of this outperformance will be worth watching. The solid performance in the year-to-date also underscores the expectations for stronger GDP growth in the Q1 FY23-24 period with the data to be released next Thursday.
Assessing policy impact and wage-price spirals
The flash PMI releases for the major developed economies hinted at a growing toll on economic growth from rising interest rates. In the US, business activity growth came close to stalling, while the UK joined the eurozone in a new downturn. Only in Japan, which has been spared the aggressive hiking of interest rates, has strong services-led growth persisted.
The upside is that the tightening of policy appears to be also helping drive inflation down, though the persistence of wage-related service sector price rises remained a feature of the August PMIs across the board. As a result, the surveys broadly hint at inflation sticking around the 3% mark.
The final leg of the inflation fight down to central bank 2% targets therefore still looks problematic. A key ingredient of this fight will likely be the cooling of labour markets. In this respect, the surveys brought some encouraging news of a near-stalling of hiring as companies grew increasingly concerned about excess capacity. We will know more about the US labour market with the upcoming Employment Report, but as far as the survey data are concerned there is possibly some good news around the corner for those concerned about wage-price spiral. See our Special Report on page 4 for more details.
Key diary events
Monday 28 Aug
United Kingdom, Philippines Market Holiday
Australia Retail Sales (Jul, prelim)
Malaysia PPI (Jul)
Japan Leading Economic Index (Jun, final)
Tuesday 29 Aug
Japan Unemployment Rate (Jul)
Germany GfK Consumer Confidence (Sep)
United States S&P/Case-Shiller Home Prices (Jun)
United States House Price Index (Jun)
United States JOLTs Job Openings (Jul)
United States CB Consumer Confidence (Aug)
Wednesday 30 Aug
Australia Building Permits (Jul, prelim)
Japan Consumer Confidence (Aug)
United Kingdom Mortgage Lending and Approvals (Jul)
Eurozone Economic Sentiment (Aug)
Eurozone Consumer Confidence (Aug, final)
Germany Inflation Rate (Aug, prelim)
United States ADP Employment Change (Aug)
United States Goods Trade Balance (Jul, adv)
United States Wholesale Inventories (Jul, adv)
United States Q2 GDP (2nd est.)
United States Pending Home Sales (Jul)
Thursday 31 Aug
Malaysia Market Holiday
South Korea Industrial Production (Jul)
Japan Industrial Production (Jul, prelim)
Japan Retail Sales (Jul)
China (Mainland) NBS PMI (Aug)
Thailand Industrial Production (Jul)
Japan Housing Starts (Jul)
Germany Retail Sales (Jul)
France Inflation and Q2 GDP
Germany Unemployment (Aug)
Eurozone Inflation (Aug, flash)
India GDP (Q2)
United States Core PCE (Jul)
United States Personal Income and Spending (Jul)
Friday 1 Sep
Worldwide Manufacturing PMIs, incl. global PMI* (Aug)
South Korea Trade (Aug)
Australia Home Loans (Jul)
Indonesia Inflation (Aug)
Switzerland Inflation (Aug)
Canada GDP (Q2)
United States Non-farm Payrolls, Average Earnings, Unemployment Rate (Aug)
United States ISM Manufacturing PMI (Aug)
* Press releases of indices produced by S&P Global and relevant sponsors can be found here.
What to watch
Worldwide manufacturing PMI releases
Following flash PMI updates, we will be looking to the worldwide manufacturing PMI releases next week for a global view on conditions within the goods producing sector.
As seen via July's surveys, global growth momentum slowed with the manufacturing sector showing deepening contraction. Whether this continued in August, and which regions saw the biggest changes, will be keenly watched.
Additionally, the theme of destocking among manufacturers has been a key cause for falling demand for goods and we will be assessing both the PMI figures and panel comment indications for signs of any turnaround.
Americas: US labour market report, Q2 GDP, July core PCE, personal income and spending data, August ISM manufacturing PMI and Canada Q2 GDP
A packed week of data releases is expected for the US with the second estimate of Q2 GDP, core PCE and labour market updates all due next week. Consensus expectations point to resilient jobs additions in July, close to the 187k in July, though the S&P Global Flash US Composite PMI employment index revealed a near-stagnating jobs market situation in August. Unemployment and wage growth rates are expected to remain steady.
Europe: Eurozone inflation, Germany inflation, GfK consumer confidence and trade data
Besides the final manufacturing PMIs for the eurozone and UK, economic releases to watch from Europe will include inflation figures from both the eurozone and Germany. As it is, the HCOB Flash Eurozone PMI revealed price gauges having ticked up higher in August. UK bank lending data will also be eagerly awaited, especially on mortgages.
Asia-Pacific: China NBS PMIs, India GDP, Japan industrial production data
In APAC, the focus is expected to be with PMI releases, particularly after the weak start to the third quarter for China was signalled by the Caixin PMI. That said, regions including ASEAN also saw slower growth coupled with business confidence falling to a three-year low that will be worth studying. Besides these, India's GDP will be due with the consensus pointing to stronger growth in line with the PMI output trend for India. Also watch out for industrial production numbers for Japan and South Korea.
Special reports
Flash PMI Signal Developed World Contraction as Higher Interest Rates Exert a Growing Toll - Chris Williamson
Malaysian Economy Moderates in Mid-2023 - Rajiv Biswas
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Purchasing Managers' Index™ (PMI®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
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