Economic Highlights

The UK unemployment rate edged up to 3.9% in the three months to March (forecast unchanged) from 3.8% in the equivalent period in February. There were other signs of the labour market loosening. Although employment rose by 182k on the quarter in Q1, the number of full-time employees fell back by 41k. Timelier estimates from HMRC payroll data posted a 136k decline on the month in April. The level of vacancies fell back by 55k in the three months to April, taking the number of job openings down by 223k, or 17%, from its peak in May last year. On pay trends, the figures were relatively stable. Headline earnings growth in March was steady at 5.8% (3m rolling, year-on-year), while the ex-bonus measure ticked up to 6.7%. But the Bank of England pays most attention to private sector regular pay, which remained steady at the elevated level of 7.0%. One issue that has contributed towards the dysfunctionality of the UK labour market since the pandemic, has been a rise in inactivity. In recent months, participation has shown a recovery and this continued in the three months to March with the rate for 16-64 year olds edging up further to 79%, the highest rate since November 2020. The fall in inactivity since its peak last July has added 281k to the labour force. Sadly, the number of those inactive due to long-term health issues continues to rise. In the three months to March, this stood at 2.55m, 235k higher than a year earlier as post-Covid logjams in the National Health Service deteriorate rather than improve.

Initial jobless claims fell by 22k in the week ending May 13 to 242k, below consensus expectations of 251k and reversing the jump seen the previous week that came largely on the back of erroneous data from Massachusetts. Continuing claims fell by 8k in the week ending May 6 to 1,799k, below consensus expectations of 1,820k. The Philadelphia Fed manufacturing survey surged by 20.9 points to a four-month high of -10.4 in May, the largest monthly improvement since 2009 (excluding the Covid rebound) and well above consensus expectations of -20. The new orders index gained 13.8 points to a nine-month high of -8.9. Even so, a combination with the weak Empire survey out earlier this week implies continued contraction in the US manufacturing industry.

The boost to European investor sentiment from the ebbing energy crisis is now in the rear-view mirror. The German ZEW Indicator of Economic Sentiment fell back below 0 in May to -10.7 from 4.1. The negative reading indicates that the share of pessimists outweighs the share of optimists. Similarly, the Euro Area index fell from 6.4 to -9.4. The Current Situation indices for both Germany and the Eurozone remain deep in negative territory. Together, these results suggest that an increasing share of investors do not foresee an improvement in economic conditions. In particular, the release highlighted that “the sentiment indicator decline is partly due to expectations of further interest rate hikes by the ECB. Additionally, the potential default by the United States in the coming weeks adds uncertainty to global economic prospects.”

The National Bureau of Statistics' 70-city house price data suggest the weighted average property price in the primary market rose sequentially in April, after seasonal adjustments. The increase in house prices was broad-based among all city tiers. The proportion of 70 cities that experienced sequentially higher property prices edged down in the primary market. By city tiers, Tier-1 and Tier-2 cities continued to outperform, with house prices rising sequentially by 4.0% and 3.9% month-on-month annualised in April (vs +4.0% and +6.1% in March), respectively. House prices also increased sequentially by 2.2% and 2.9% in Tier-3 and Tier 4 cities (vs +4.4% and +2.7% in March). Despite more local housing easing measures in recent months, property markets in lower-tier cities still face strong headwinds from weaker growth fundamentals than top-tier cities, including net population outflows and potential oversupply problems. The People’s Bank of China saw no reason to shift interest rates at its latest meeting, with the 1-year rate set at 2.75%, the level at which it has been stuck since last August.