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MNI Monthly Macro Data Round Up

MNI DATA IMPACT: UK CPI Higher On Fuel Costs, Below BOE Target
MNI DATA IMPACT: UK CPI Higher On Fuel Costs, Below BOE Target
MNI (London)

In the document below we review the major data releases of the past month, including the major releases from the US, Eurozone, UK, Germany, France, Italy and Spain.


Broadening Core Inflation Pressures

  • In a month when shelter inflation took off even more, core CPI ex shelter and used cars was back at cycle highs of 0.70% M/M, similar to overall core CPI of 0.70% M/M.
  • That adds to evidence of broadening of inflationary pressures from median CPI metric beforehand, especially considering airfares also finally fell -1.8% M/M.
  • Some other upside surprise came from apparel accelerating to +0.79% M/M after +0.67% M/M after some analysts had expected a decline with markdowns on excess inventory.

Medical Care Services Costs Gaining Momentum

An unsung contributor to the surprisingly high July CPI reading was accelerating medical care services inflation - the sector represents about 7% of overall CPI (by comparison, a little less than rent of private residences ) and continues to show steady upward momentum.

  • It hit a 33-month high in June and was one of the highest M/M prints since the early 1990s (+0.73% M/M, vs +0.43% prior).
  • Also of note is that medical care services looks like it represented the median inflation category in June (according to inflation fund manager Michael Ashton on Twitter), which if true would mean another fresh post-1982 high for median (to be confirmed by the Cleveland Fed's monthly release later today), vs +0.58% median M/M In May.

Source: BLS, MNI

Surging Payrolls Close Pre-Pandemic Gap

  • With payrolls surprisingly surging 528k in July (cons 250k) and with small upward revisions, payrolls have closed the gap with pre-pandemic levels in what's been a historically fast recovery compared to prior recessions - first chart.
  • Monthly payrolls gains were led by the same three sectors as June: professional & business services, health & social assistance and a strong ramp up in food & drinking places, typically a discretionary spending-heavy component. Surprising resilience in interest-rate sensitive construction.

Q2 Arguably The Weakest Quarter in Two Years

At a glance: a weak advance GDP number for Q2. Putting aside the question of technical recession, the details suggesting unsettling underlying dynamics and arguably the weakest quarter since Q2 2020 despite a modest uptick vs the prior quarter (-0.9% Q/Q annualized, vs -1.6% prior).

  • Disappointing private consumption growth (goods consumption saw the biggest drop since Q3 2021 though services picked up)
  • Biggest drop in residential investment, nonresidential structures, and equipment investment since Q2 2020.
  • Inventories subtracted 2.0pp from the headline figure but this miss wasn't all about that.
  • That's because underlying demand was also poor. Final sales to domestic purchasers went negative for first time since Q2 2020; to private domestic purchases flat (also worst figure since Q2 2020).
  • A higher-than-forecast price deflator also of note (though core PCE in line).

Notable Beat For ISM Services With Increases In Activity And Orders

  • ISM Services came in notably stronger than expected in July, rising from 55.3 to 56.7 (cons 53.5) and contradicting the slide seen in the US PMI to 47.3 which in turn had marked the weakest growth outside of lockdown months since the GFC.
  • The prices index decreased for the third consecutive month, falling 7.8pts to 72.3%, but “availability issues with overland trucking, a restricted labor pool, various material shortages and inflation continue to be impediments for the services sector”.
  • In further signs of bottlenecks hindering supply, “services businesses continue to struggle to replenish inventories, as the Inventories Index contracted for the second consecutive month”.
  • The release sparked an aggressive further sell-off in Tsys, with the front-end jumping 5bps on the snap election, continuing on to a 12bp increase to a peak 3.20% before trimming the surge to 3.16% currently, huge moves after yesterday’s overnight low of 2.815%. Similarly, Fed Funds futures currently price a 64bp hike at the Sept FOMC, pushing above a 50/50 chance of a 75bp hike for the first time since last week's FOMC.


Q2 GDP Sees Surprise Strengths, CPI Soars to 8.9%

EUROZONE FLASH JUL CPI +0.1% M/M (FCST -0.1%); JUN +0.8% M/M


EUROZONE Q2 2022 FLASH GDP +0.7% Q/Q; Q1 +0.5%r Q/Q

  • The aggregate euro area headline inflation surged a further 0.3pp to a fresh high of +8.9% y/y in the July flash.
  • This follows decent upside surprises to German, French and Spanish HICP. Only Italian HICP managed to edge down (by 0.1pp).
  • Forecasts were beaten across the board by 0.2pp on the headline and month-on-month and by 0.1pp on the core print. Three countries (Estonia, Latvia and Lithuania) saw year-on-year rates over 20%.
  • Core inflation excluding food and energy also saw a 0.3pp boost, reaching +4.0% y/y after a small 0.1pp deceleration in June. As such underlying inflation is at over double the ECB's target inflation rate.
  • A small slowdown in energy prices was recorded at +39.7% y/y in July, following +42.0% y/y in June, however this was cancelled out by a strong 0.8pp uptick to a +9.8% y/y acceleration in food prices.
  • Euro area GDP saw a solid 0.5pp beat of forecasts at +0.7% q/q in the Q2 flash estimate, underscoring a robust end to H2 despite soaring commodity prices and deterioration of economic outlooks and supply chains exasperated by the Ukraine war.
  • As prices continue to soar across the Eurozone and regional GDP prints for Q2 remained robust, this data puts a 50bp hike very much on the table for the ECB's September meeting.

PPI Sees Modest Deceleration for Second Consecutive Month

EUROZONE JUN PPI +1.1% M/M, +35.8% Y/Y (FCST +35.7% Y/Y); MAY +36.2%r Y/Y

  • Euro-area factory gate inflation was only marginally hotter than expected, up +1.1% m/m and by +35.7% y/y in June.
  • This is down a modest 0.4pp from May in the second month of decelerating PPI, largely due to the slowing of energy prices (+92.8% vs +94.4% in May) and intermediate goods (+23.8% vs +25.0%).
  • The highest yearly increases were recorded in Romania (+61.2%), Denmark (+55.5%) and Lithuania (+52.5%).
  • Excluding energy, PPI increased to 15.6% y/y in June, which is 0.4pp lower than in May and hints at a more widespread gentle deceleration of prices. This will come as welcome news to the ECB, however, slowing factory-gate inflation is yet to spill over into consumer prices which continued to soar to a record +8.9% in July.

Robust June Industrial Production, Gas Supply Concerns Going Forward



  • Industrial production saw a robust June expansion in the eurozone, up 2.4% y/y (up 0.8pp from May). The month-on-month expansion was 0.7% m/m, following the substantial upwards revision in the May data, from +0.8% m/m to +2.1% m/m.
  • The June data is all above expectations, at a 0.5pp beat month-on-month and 1.4pp beat for the annual print.
  • Expansions were registered in the production of capital goods (+7.6% y/y) and durable g=consumer goods (+4.0%), whilst energy stabilised (+0.0%). Soft contractions were seen for intermediate goods (-0.5% y/y) and non-durables (-1.1%), hinting at slowdowns in demand.
  • Substantial discrepancies are seen across national IP numbers (see graph below).
  • More recent developments in the gas supply through Russia are cause for concern regarding euro area industry going forward, leading some sell-side analysts to shift forecast a German industry contraction for Q3 and Q4.
  • The ECB will be closely monitoring signs of contraction across the bloc ahead of the September 8 meeting, with a front-load-and-pause tactic remaining the most likely.

Euro-Area Consumer Sentiment Signals Recession Ahead

  • The latest EC economic confidence survey recorded a 4.5-point dive to 99.0 in July for the eurozone, slipping below the long-term average for the first time since February 2021. The report detailed substantial broad-based falls across industry, services, retail and consumer confidence. The latter index saw outlooks on future financial situation hit an all-time low and propensity to make major purchases fell to April 2020 levels.
  • This followed another worse-than-expected historic low for the German GfK consumer sentiment index in August, whilst French consumer confidence edged down towards 2013 lows. Consumer confidence in Italy fell to May 2020 levels.
  • Across the board, the squeeze of soaring inflation on households and no signs of relief in the Ukraine war underlined increasing pessimism. The deterioration in outlooks has been exacerbated by persistent supply chain disruptions, as well as household concerns regarding the security of gas supplies heading into H2.
  • A few small points of optimism can be found in the details: the German propensity to spend on big-ticket items fell less than before, French inflation outlooks eased slightly and minimal upticks were noted in Italian construction and retail sentiment.
  • On the employment front, signs of faltering confidence were evident in both the French index and EC aggregate index on the back of waning consumer demand.

June Retail Contracts by 3.7%

EUROZONE JUN RETAIL TRADE -1.2% M/M, -3.7% Y/Y (FCST -1.7% Y/Y); MAY +0.4%r Y/Y

  • The June data saw Eurozone retail trade weaker than anticipated, contracting by -1.2% m/m and by -3.7% y/y. The year-on-year print is a substantial 2.0pp below forecast and a 4.1pp slide from the soft May expansion.
  • The largest June year-on-year contractions were recorded by Denmark (-9.5%), Germany and Ireland (-8.8%) and the Netherlands (-6.1%).
  • This mirrors slowing consumer demand across the bloc, as PMIs flagged falling new orders. Inflation surged further to +8.9% y/y in July, which will likely see retail continue to suffer into the tail end of Summer as consumer confidence slips to record lows.
  • With CPI not yet showing signs of easing, the ECB appears to have sights set on prioritising front-loading policy normalisation to restore consumer confidence sooner rather than later.

PMI Data

July PMIs Round-Up: Contractions For All But UK, Signs of Easing Inflation

France: all July flash PMIs were weaker than forecasts. Weak demand on the back of high inflation and recessionary fears was the key driver.

  • Final manufacturing fell 1.8 points to 49.5 (1.5 below initial forecast), dipping into the contractionary territory for the first time since November 2020. Manufacturing output contracted to 44.0, a 26-month low.
  • Services activity slipped 0.9 points, falling to 53.2 (an upwards revision on the 52.1 flash) and the weakest since January.
  • Inflation: Some signs of further price easing was seen in input prices. Wage, energy and fuel price pressures remained acute.
  • Employment: Despite slowing, job creation remained strong. Some initial signs of reduced production seeing workforces decline.
  • Expectations: Output expectations remain in positive territory, improving from the May 19-month low. Services expectations remain better than manufacturing.

Germany: all flash PMIs were below expectations, all falling into contractionary territory below the 50 breakeven mark.

  • Both domestic and export demand fell. Uncertainty regarding the economic outlook against a backdrop of soaring inflation saw demand suffer as tighter budgets generated less new business.
  • Final manufacturing output slumped by 3.3 points following a 0.5-point upwards revision to 49.7 as output fell the most since May 2020.
  • Services saw a 2.7-point decline after a 0.5-point upwards revision, as staff shortages and falling new business dragged. Sales declined for the second consecutive month.
  • Inflation: Input costs and prices charged continue to rise but at a slower pace. Energy/commodities, a weaker euro and higher labour costs remain key upwards pressures.
  • Employment: Employment growth steady.
  • Expectations: Confidence lowest since May 2020, outlooks significantly negative. Expectations slipped into negative territory for the fist time since May 2020 Service sectors seeing a slowdown for the first time in two years.

Eurozone: all flash PMIs were lower than forecasts, with the manufacturing seeing a contraction.

  • Output and new orders fell for the first time since early 2021 lockdowns and services close to stalled in July as lower disposable real incomes saw consumer demand eroded. Manufacturing output saw the largest decline and the slowdown in Germany exerted considerable downwards pressure on the composite reading.
  • Manufacturing fell 2.3 points to 49.8 and services fell 1.8 points to 51.2. These final prints were 0.2 and 0.6 points above initial prelim prints.
  • Inflation: Selling and input costs edged down on the back of easing supply chain disruptions and weakening demand. Selling price inflation softened across services and manufacturing.
  • Employment: Employment growth moderated for second consecutive month to a 15-month low.
  • Expectations: Business expectations lowest since May 2020, remaining slightly positive.

UK: all July flash PMIs were marginally stronger than expected, still weaker than in June.

  • The UK manufacturing PMI moderated to 52.1 (down 0.7 points), whilst services PMI weakened to 52.6 (down 1.7 points) in July after minimal 0.1-point downwards revisions. Both prints remain in expansive territory and stronger than Euro area prints. These were still substantial lows, as services fell to a 17-month low and manufacturing to a 25-month low. Manufacturing output contracted for the first time since May 2020.
  • Moderate increases were seen in new order volumes, signalling relatively robust demand for services, however manufacturing demand weakened significantly.
  • Inflation: Input inflation saw considerable easing at a 10-month low. Prices charged eased to the slowest increase since January as demand softened.
  • Employment: Employment rose further, however job creation slowed to a 16-month low due to labour shortages and concerns regarding future growth outlooks.
  • Expectations: Outlooks saw modest improvements from the 25-month low seen in June. Manufacturing outlooks were downbeat at 1 26-month low.

Source: MNI / Bloomberg


UK Inflation Surge Underlines BOE Dilemma

  • UK inflation rose to a fresh 40-year high in June, with the consumer price index rising 9.4% year-on-year, the biggest increase since the comparable 10.2% increase recorded in February 1982, according to the ONS, outpacing forecasts marginally.
  • GBP marginally weaker after the CPI print (despite headline coming in a tenth higher than expected). Going into this print, markets were pricing around 45bp for the August MPC meeting. The MNI Markets team had said after the June MPC meeting that we saw around a 60% probability of a 50bp hike but that it would depend upon the data.
  • The data brought the Monetary Policy Committee a step closer to the August 50bps hike, although the increase is within the trajectory policymakers see towards an October 'peak' around 13.3%.
  • Once again, the pressure on consumer spending was highlighted by the continued year-on-year surge in the costs of running the household, with the Housing, Water, Electricity and Gas up 19.6% -- although it was flat on the month. Transport costs rose sharply on the month, up 2.3%, extending the annualised gain to 14.9%, driven by an increase in petrol prices to record highs.

UK Real Incomes Declined At Record Pace In May

Real wages in the UK fell again in May, as pay deals and bonus payments failed to keep pace with soaring inflation, dipping even very slightly below analysts' expectations.

Total average earnings rose 6.2% y/y in the three months to May, driven in large part by bonus payments, while pay deals excluding bonuses rose by 4.3% y/y. However, when adjusted for inflation, real wages fell 0.9% y/y and by 2.9% excluding bonuses. Excluding bonuses, "real pay is now dropping faster than at any time since records began in 2001,” according to David Freeman, head of labour market and household statistics at the ONS.

The jobs and wages data remains key to the BOE's reading of the UK economy.