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UK and European PMI disappoints, US payroll shows a modest rebalancing

Both PMI prints were below economists’ expectations, while jobs rebalancing most likely means a pause in further rate hikes.

1 September 2023

The Manufacturing PMI survey of roughly 600 purchasing managers in the UK which asks respondents on a monthly basis to rate the relative level of business conditions (including employment, production, new orders, prices, supplier deliveries, and inventories) saw a continuing decline in activity, now registering its thirteenth consecutive contractionary number which started over a year ago. At a reading of 43, the lowest it has seen in this slump, it does not reflect well on the outlook for the economy in general. The reading in Europe shows a similar pessimistic view in the manufacturing sector with the same survey (albeit on a much larger sample size of 3000 companies across Europe) recording a reading of 43.5, its fourteenth consecutive contractionary number. Both prints were below economists’ expectations.

The US payroll report released today showed a modest rebalancing in the jobs market with non-farm employment gains of 187k broadly in line with forecasts and very goldilocks-esque, not too hot by any means. Non-farm payroll gains have been slowing for over a year now at a gentle pace and this print will push the Federal Reserve (Fed) to continue to conclude that it’s a jobs market that is softening but not collapsing. The rebalancing in this jobs report came through in average hourly earnings with only increased 0.2% versus 0.4% last month – so a softening in the pace of wage growth which the Fed will also most certainly welcome. It most likely means a pause in further hikes is more on the cards now; but before we get too excited, unless the jobs market hits an unexpected bump, rate cuts will still be some way off from here.

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Charles Hepworth

Investment Director
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