Economic wrap: awaiting FOMC minutes - Westpac

Analysts at Westpac offered an economic wrap.

Key Quotes:

"US manufacturing PMI (Markit) slipped from 55.0 to 54.3 (vs 55.4 expected). Still in expansion territory, although the employment component slipped to 52.7 from 53.9 and prices charged also slipped.

Eurozone manufacturing PMI (Markit) rose from 55.2 to 55.5 (vs 55.0 expected). This upside surprise was mainly driven by Germany, while the acceleration in the services PMI was broader based across countries. Job creation was at the highest level since 2007, posing upside risks to inflation as the labour market continues to improve. 

Fedspeak: Harker repeated yesterday’s MNI interview comments, looking for three rate hikes this year, and proclaiming March live (echoing Yellen). Kashkari was non-committal. Williams saw financial stability risks from low-interest rates.

Event Risk

Australia: RBA Governor Philip Lowe sees 3pct GDP by 2019

The Westpac Leading Index survey is running at 1.28% annualised. Positives this month include commodity prices, up 4% in AUD terms; consumer expectations +1.8%; and total hours worked +0.6%. Against this, the ASX200 dipped -0.8%; US industrial production dipped -0.3%; dwelling approvals declined -1.2%; the yield spread narrowing slightly and the unemployment expectations index deteriorated. Overall a consolidation on recent gains looks likely.

Q4 wage price index rose 0.4% in Q3, below market and Westpac's expectations for 0.5%, while the annual pace of wage inflation dipped to 1.9%yr, a record low. Wages are underperforming broader indicators of the labour market. Even if you use the broadest indicator of labour market slack, underemployment, wages growth is significantly softer than what you would expect it to be. We think little has changed hence our 0.4% forecast, which will take the annual pace down to 1.58%yr.

Q4 construction activity slumped in Q3, contracting by 4.9%, as the downturn in mining project work was exacerbated by surprising softness elsewhere. For Q4, we anticipate a modest contraction in construction work, of -0.8%. Private infrastructure work is expected to fall by 6.0%, not greatly different to last quarter, -6.6%. Total private building activity is expected to resume its upward trend, centred on housing, +1%, following a 5.7% drop last quarter. Public construction activity is also expected to resume its uptrend, centred on infrastructure.

US: FOMC Minutes. The release should offer some guidance on the prospects of a March hike. Key points of discussion centre on the labour market. This includes the outlook on the undershooting of the natural unemployment rate creating inflationary pressures, the return of people to the labour force as the economy strengthens, and measures of labour underutilisation.

Fedspeak includes Williams speaking to students and Powell on the economic outlook at the Forecaster’s Club of New York."