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Daily Insight

Group Economics Macro & Financial Markets Research

02 December 2016

US nearing full employment Macro & Financial Markets Research team Tel: +31 20 343 5616

US Macro: November’s jobs market preview – The US labour market remains strong. Nonfarm payrolls have shown an average gain of 180K over the past eight months. November’s preliminary jobs data show the employment indices of the ISM surveys are still strong, while jobless claims remain at considerably low levels. Another report, the NFIB small business survey, shows that hiring is expected to remain stable, but this could change in the coming time as a result of the stimulus plans that have been announced by the president-elect Trump. On top of this, the ADP private employment report released on Wednesday, increased by 216K jobs in November, with a strong boost from the serviceproducing sector. This report is an appetizer for Friday’s nonfarm payrolls data. We think that that employment gains will likely continue at the average rate in November (180K) in Friday’s report. Moreover, we have been seeing lately some signs that labour underutilisation has been declining. The participation rate and a broad measure of underemployment have improved. If this trend continues the unemployment rate will likely remain at 4.9% in November. As a result we expect wage growth to increase only moderately (0.2%) in this report. Stronger growth, with an economy nearing full employment will likely result in a faster pace of Fed rate hikes in 2017. We expect three hikes next year. (Maritza Cabezas) Euro Macro: Is France heading for radical economic reform? - With the nomination of François Fillon as the candidate of the centre-right for the presidential elections, France might be heading for a period of tough economic reform. Mr Fillon’s economic plans include a EUR 50bn tax cut (around 2.5% of GDP), largely for companies, which should be financed partly by hiking the VAT rate by two percentage points and reducing the amount civil servants by 500,000. Moreover, he would remove the 35 hour work-week, raise the pension age to 65 from 62-63 and reduce labour protection. All in all, his plans would increase France’s competitiveness and raise its long-term growth potential, but it could in the shorter term result in social unrest and depressed consumption growth. With regard to the likely outcome of the elections, there seems to be a high probability that Mr Fillon could become France’s next president. Current polls for the first round of the elections show that his party is neck and neck with the Front National, but polls for the second round of voting put Mr Fillon (around 65% of the votes) far above the FN leader Marine le Pen (around 35%). However, the polls have to be taken with a pinch of salt, as the first round of the elections is still a long time away (23 April 2017). On top of that, the socialist party still has to select its candidate (their primary will be held in January). (Aline Schuiling) Global Macro: Manufacturing PMIs confirm improving global cycle - The manufacturing PMIs for November published on 1 December confirm the picture of a strengthening global manufacturing cycle, with improvements seen in many (but not all) of the key advanced and emerging economies. In the advanced economies, the US Markit’s PMI and the US ISM index continued their upward trend. The manufacturing PMI for the eurozone rose further to 53.7 (October 53.5), the highest number since January 2014. By contrast, this index for November fell in Japan (only marginally to 51.3) and the UK (by 0.8 point to 53.4, but remaining clearly below the 2016 average so far). For the emerging economies, the picture

Bloomberg: ABNM


Daily Insight - US nearing full employment - 02 December 2016

was more divergent. In China, the official manufacturing PMI (NBS) rose further to 51.7 (October: 51.2), the highest number since April 2012. By contrast, Caixin’s index fell back somewhat, but was still much higher than the average for 2016 so far. In other key EMs, the manufacturing PMIs rose in Russia, Indonesia, Poland and South Africa. However, the index declined in countries with specific issues, such as India (impact of demonetisation), Mexico (uncertainty after Trump victory) and Turkey (political and external fragilities). All in all, the manufacturing PMIs are in line with our view that the global industrial sector is gaining traction. (Arjen van Dijkhuizen)

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Daily Insight - US nearing full employment - 02 December 2016

Global daily insight 2 december 2016