KBC Bank

US eco data stronger than expected, again

US eco data yesterday again came out on the stronger side of expectations. This especially was the case for a series of indicators from the labour markets.

The ADP employment report showed an increase in payrolls by 150K in June. This compares to a 98K increase in May and consensus expectations for a similar growth at around 100K in June. Looking at the details of the report, most jobs last month were created in small and medium-sized companies. For a sector point of view, it was the services sector that showed a gain of 163K. The good producing sector (including construction) even recorded a small decline in employment. Nevertheless, the report is another indication that the US labour market remains healthy and there are no big negative spill-over effects from the housing markets on the broader economy.

In the same line, the Challenger report on job cuts showed the number of announced lay-offs declining 17% from the same period later year.

The initial claims statistics for the week ending June 30 was a (small) exception to the rule. Initial jobless claims rose slightly from 316K to 318K. However, the deviation from consensus was very small. Continuing claims were slightly higher as well coming out at 2569K, up from 2485 in the previous week.

In line with the ISM manufacturing report published earlier this week, the ISM nonmanufacturing survey painted a rather bright picture in the US services sector. The headline index came out at 60.7, up from an already very strong 59.7. Details of the report didn’t fully comply with (very) strong headline index, but the conclusion remains that the sector is still in very good shape. Looking at the details the activity production index dropped from 62.9 to 60.7 while new orders declined from 60.3 to 56.9. On the other hand the employment index showed quite a spectacular rebound from 51.1 to 55.0. The price sub-index also declined slightly from 68.0, to 65.5, but in a longer term perspective this should still be considered as reasonably high.

Other: Bank of England raises rates to 5.75%
At the July meeting, the Bank of England raised rates by 25 basis points to 5.75%. Following the split vote in June and sustained strong eco data, the rate hike was generally expected. The accompanying statement was quite similar to the one issued after the May rate hike. Hence, the Bank of England still sees the risks to the outlook for inflation in the medium term to the upside and further rate hikes may still be necessary to bring inflation back to the target in the medium term.