US DATA: Establishment Survey Sees In Line Payrolls But Weak Hours
The establishment survey saw payrolls growth almost as expected, but AHE and in particular hours worked underwhelmed. It’s hard to know what was seen in the report to drive the initial sell-off in Treasuries, beyond pricing had shifted too negative after ADP and even yesterday’s Challenger report with its unusually large reaction. All other details point to at best in line with a few notable weaker aspects.
- Nonfarm payrolls increased 151k (sa, cons 160k) after two-month net revisions of -2k (of which -18k Jan, +16k Dec), leaving an acceleration from 125k in Jan.
- There was a similar story for private payrolls, at 140k (sa, cons 145k) after a two-month downward revision of -16k (-30k Jan, +14k Dec) for an acceleration from 81k.
- This new profile of an acceleration relative to January was backed by the one-month diffusion index of private industries bouncing from 52.4 to 58.4% (for context it averaged 53.8% in 2024, 58.8% in 2019). The three-month remains at a healthy 62.0% (55.2% 2024, 61.5% 2019).
- Some federal government layoffs are showing up (but we still think the ~75k on the deferred resignation program won’t have had an impact this month) with federal employment jobs -10k seasonally adjusted for the largest decline since Jun 2022. Total government jobs increased 11k mainly thanks to another 20k net increase in local roles.
- In non-seasonally adjusted terms, the 891k actual net jobs created is the lowest for a February since 2019 and follows 1,065k in Feb 2024.
- Average hourly earnings increased 0.28% M/M for close to the 0.3% expected - especially when factoring in reasonable analyst skew towards 0.2% - but it followed two sizeable downward revisions. It meant year-on-year wage growth undershot at 4.02% Y/Y (cons 4.1) after a downward revised 3.95% (initially 4.1).
- Whilst this shouldn’t change the core Fed leadership view that inflationary pressures aren’t likely to come from the labor market in the near-term, it’s also not weakening fast enough to cause concerns in its own-right.
- However, it’s more notable when factoring in the surprisingly weak average weekly hours worked, at just 34.1 (cons 34.2) for a second month running. 34.1 is a joint low with only one month in the pandemic (Mar 2020) and was last seen in mid-2010.
- There had been an argument that the 34.1 in Jan could have been down to adverse weather (although the BLS at the time said there was no effect) but a second month increasingly looks like a sign of business caution and tallies with the lift in those working part-time for economic reasons in the separate household survey.
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ITALY DATA: Ita-coin Nowcast Negative For 9th Month
The Bank of Italy’s Ita-coin indicator (nowcast for IT trend growth) remained subdued in January, falling to -0.09 (vs -0.05 prior). The indicator has been below zero for nine consecutive months.
- The manufacturing sector has dragged on Italian activity over the past two years. The January PMIs saw the manufacturing PMI print in contractionary territory for the 10th month in a row (services just about remained above the neutral 50 level).
- Flash Q4 GDP was 0.0% Q/Q, a touch below the 0.1% expected. Current Bloomberg consensus is for sequential quarterly growth to be between 0.2-0.3% through 2025. Consumption is expected to drive this recovery, in part due to a resilient labour market and solid real wage growth.
- However, the December retail sales data (released this morning) pointed to continued consumer caution. Real 3m/3m sales were -0.2% (vs 0.3% prior), and rose just 0.1% Y/Y (vs -0.2% prior).
US DATA: Service Sector Firms Struggling To Pass On Increased Costs
- The S&P Global Canadian services PMI increased to 49.0 in January from 48.2 in December, an improvement on the month but still one pointing to a decline in activity.
- The composite PMI remained in contractionary territory, rising from 49.0 to 49.5.
- The press releases details declining activity along with higher input costs but firms struggling to pass on costs:
- "Canada’s service sector experienced a second successive monthly decline in business activity during January amid a further reduction in incoming new business volumes. Market demand was reported to be subdued and, with evidence of spare capacity, service companies chose to reduce staffing levels for the first time in four months.
- Meanwhile, operating expenses continued to rise sharply, amid reports of higher prices for a wide array of inputs. Output charge inflation was relatively modest in comparison as firms struggled to pass on increased costs to clients."
- See the full press release here.
CANADA: PM Convenes Canada-US Economic Summit For 7 Feb Following Tariff Pause
Prime Minister Justin Trudeau has announced a Canada-US Economic Summit to take place in Toronto on Friday 7 February. In a press release, the PM's office said the summit will look to expand the work of the newly formed Council on Canada-US Relations and include leaders from trade, business, public policy, and organised labour. "Using their sectoral expertise, the leaders will explore ways to grow Canada’s economy, make it easier to build and trade within the country, diversify export markets, and rejuvenate productivity. The Summit will see increased co-ordination, co-operation, and interoperability between partners, including through issue- and sector-specific conversations."
- It would appear that rather than being a summit for Canadian and US business and political figures to meet, it will focus on boosting domestic investment and identifying potential markets for Canadian goods other than the United States.
- After threatening the imposition of 25% tariffs on Canadian (and Mexican) imports, US President Donald Trump agreed to pause these measures on 3 Feb after commitments from Ottawa and Mexico City regarding border security and the flow of illegal narcotics. The pause is in place for 30 days and will allow for further negotiations.
- The increasingly bitter spat between the erstwhile allies has sparked a high-profile 'buy Canadian' campaign in some outlets.
