Economic Calendar US & SA macro-economic data week January 29
Posted on 30 Jan 2018
The US macro calendar is relatively full and is dominated by the release of inflation, consumer confidence and jobs data, as well as the latest FOMC policy statement.
The December Personal Income & Outlays report is important for the updates it will provide re the Fed’s favoured inflation benchmark, the core PCE Price Index. We foresee a number no higher than 1.6% year-on-year, which in truth is well short of the 2% target. On Wednesday, the Employment Cost Index, the broadest measure of wages, salaries and benefits, looks likely to show another good quarterly increase, and perhaps attain a 2.6% to 2.7% annual rate. This will give some credence to a Fed rate hike in March. Should the rate of average hourly earnings in the job’s report on Friday elevate above an annual 2.6% this would provide additional support for a March move. Watch Treasury yields and the US dollar for any response to slightly higher readings, although the currency appears not to be moving any more on rising interest rate and inflation differentials. The Trump administration appears intention pursuing a weak dollar policy.
The reports on December US consumer sentiment and confidence are also due out. The former is front-running the latter. The consumer sentiment index’s preliminary January number showed some weakness, amid uncertainty regarding tax reform, and the looming shut down of the Federal government. The official BLS employment report is set for release on Friday. We think payroll expectations have to be moderated at this stage of the economic recovery with the unemployment rate so low. Any payroll number north of 175,000 will be cheered by market participants.
The key macro event of the week is the release of the FOMC policy statement on Wednesday, the last FOMC meeting under Janet Yellen’s stewardship. Jerome “Jay” Powell is set to take over on February 3. It is a nailed-on certainty that no rate hike will be initiated at this meeting. We expect the Fed to maintain the use of the word “solid” to describe the pace of economic activity. In our view, it is possible that the language utilised to describe household spending and business fixed investment will be firmed up a little in view of the Q4 2017 GDP report released last week. The report showed that real consumer spending is growing at a rate of 3.8% quarter-on-quarter annualised, eclipsing even the very strong back-end of 2016. Residential spending is proceeding at an annualised 11.6% pace, while business fixed investment is expanding at a rate of 6.8%. The only real improvements in inflation readings since December have been in headline CPI, and in 1-year inflation expectations. This will not be enough to change the FOMC’s wording on inflation. We expect the decision to be unanimous. The more important rate decision comes on March 21, which is accompanied by a new set of updated economic projections and will be followed by Jerome Powell’s first press conference as Fed Chair.
In South Africa, the macro highlight must be the release of local trade data for December on Wednesday. We anticipate a R9 billion monthly surplus in December for an annual trade surplus of around R74 billion, the best by far of recent times. Better terms of trade due to a stronger rand and higher commodity prices are doing much to narrow the current account deficit, which in turn is a major marker for the country’s economic well-being. We see the ZAR performing well on the day amid an improving political, governance and policy outlook, which has seen foreign portfolio investors aggressively chasing shares of domestically-focused SA companies.
On Thursday, the ABSA SA Manufacturing PMI report for January will be released. We think it too early for improved business sentiment to be reflected in actual economic activity on the ground. If truth be told, SA GDP growth has nothing to do with manufacturing at all, rather it is being driven by mining and metals due to higher commodity prices, the net trade effect and the very rapid recovery in the agricultural and agri-processing sectors due to the dissipation of drought effects.
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