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The Marketplace - October 15th 2015

With little on the UK and Eurozone calendars of note, with the exception of some ECB speakers, attention will be on the US today. The main focus will likely be the release of the Philadelphia Fed and Empire surveys for October, as well as New York Fed President Dudley’s speech at 15:30BST on the Fed’s policy reaction function. In light of recent comments from Brainard and Tarullo (both of whom are permanent voters) that appeared to be more dovish than Fed Chair Yellen, markets will be examining closely whether Dudley will shift his rhetoric away from his expectation of lift-off in 2015.

UK Employment Data Decent

The country’s unemployment rate unexpectedly fell to its lowest level since mid-2008 in the three months to August but pay growth was a touch slower than expected by economists.  The Office for National Statistics said Britain's unemployment rate fell to 5.4%, down from 5.5% in the three months to July.

It was the lowest jobless rate since the second quarter of 2008, before the worst of the financial crisis.  The number of people in employment jumped by 140,000, pushing the employment rate to 73.6%, the highest since records began in 1971, while those unemployed fell by 79,000, the biggest fall since the three months to January.

The total earnings of workers including bonuses rose by 3.0%, edging up from the three months to July, but short of a forecast of 3.1%.  In the month of August alone, total wages in the private sector, which are monitored closely by the Bank of England, rose by 3.5%, slowing from 4.3%.

The growth in pay in recent months has helped restore spending power for many households who took a big hit in the aftermath of the financial crisis as wages stagnated and inflation rose.  By contrast, consumer price inflation in September dipped back below zero, according to data released on Tuesday.  Excluding bonuses, average weekly earnings growth slowed slightly to 2.8% in the three months to August, down from 2.9% in the three months to July which was the strongest growth rate in over six years.

Sterling got a wee boost on the back of the data but still looks weak and vulnerable at the moment.

U.S. Retail Sales OK

US retail sales increases were less robust than expected in September, and there were downward revisions to back months. Still, core sales, which factor into GDP, were up 4.5% annualised in 3Q after rising by 5.1% in 2Q. Yesterday’s data, along with continued gains in car sales, suggest that consumer spending was still healthy in 3Q, though not as strong as the pace of 2Q.

Nominal retail sales rose by 0.1% in September, slightly less than expected. There was also a downward revision to August sales. Auto sales were up by 1.7% portended by strong unit auto sales. Sales less autos unexpectedly fell as declines in gasoline, electronics, building materials, food, miscellaneous, and online sales offset gains in clothing, department, furniture, restaurant, and sporting goods sales.

Core retail sales, which exclude volatile auto, gasoline and building material sales, increased by just 0.1 percentage point, while we looked for a gain of 0.4 percentage point. There were also downward revisions to July (from +0.6 percent to +0.5 percent) and August (from 0.5% to 0.2%) sales.

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