The tight US labour market plays a crucial role in the effort of the central bank of bringing inflation back to target. Slower growth in labour income should lead to slower demand growth, whereas smaller wage increases will ease pressure on corporate profit margins and reduce the need for companies to charge higher prices. The labour market is characterized by a dynamic interaction between job openings, unfilled vacancies, voluntary departures (quits) and layoffs. In the US, unfilled vacancies and the quits rate have started to decline and one should expect that this dynamic will gather pace, causing a slowdown in wage growth. The question remains to what extent this will bring down inflation, which is why the Federal Reserve’s policy is completely data-dependent.
On the whole, global trade tensions are continuing to subside, but new areas of friction are emerging as a result of the war in Ukraine. The New York Federal Reserve’s supply-chain pressures index has fallen significantly since the beginning of the year to reach its lowest level in 18 months in August. Another visible indicator of this reduction in bottlenecks is shortening delivery times: the global manufacturing PMI (purchasing managers' index) rose to 44.8 in August from 35.8 four months previously. A rising figure indicates a reduction in delivery times. However, this remains below its historical pre-pandemic average.
The results of Italy's parliamentary elections have handed power to the right-wing coalition led by Giorgia Meloni. The new administration will quickly be put to the test, since it will take over an increasingly struggling economy exposed to a high risk of recession this winter. Our current forecast is that real GDP will fall by 0.4% quarter-on-quarter in the fourth quarter, followed by a 0.2% q/q drop in the following quarter. The industrial sector, the first section of the economy affected by disruption linked to the war in Ukraine and the rise in production costs, is experiencing a downturn.
Despite a tight labour market, the UK economy is showing clear signs of a slowdown in growth as inflation hits a 40-year high. According to the monthly GDP estimate published by the ONS, on a three-month moving average UK growth was flat in July, marginally below expectations (+0.1%). This zero figure masks more substantial monthly changes: after rising in May (+0.4% m/m), GDP fell in June (-0.6% m/m) before recovering slightly in July (+0.2% m/m). In July, growth in the services sector (+0.4% m/m) was largely offset by new contractions in industry (-0.3%) and construction (-0.8%).
3.4 million new Covid-19 cases were recorded worldwide from 14–21 September, a fall of 4% compared to the previous week. This is the smallest decrease since August last year. All regions of the world are affected with the notable exception of Europe, which recorded an increase for the first time since last July (an 18% rise). Of the 3.4 million new cases making up the worldwide total, 1.3 million were reported in Europe (38.2% of all cases).
