The dearth of data on the state of the US economy caused by the federal government shutdown is set to continue after the Bureau of Economic Analysis postponed two releases that had been due on Wednesday next week.
The BEA said on Thursday that its planned releases of data on third-quarter GDP and September inflation would be rescheduled to dates to be advised, adding to investor uncertainty after fears of tighter than anticipated monetary policy contributed to the jitters hitting stock markets in recent days. With the Federal Reserve due to make its next decision on interest rates on December 10, the postponements risk leaving policymakers with even less to go on.
Economists polled by Reuters had expected GDP to come in at an annualised pace of 3 per cent in the three months to September 30, down from 3.8 per cent in the second quarter. Despite the expected decline, a 3 per cent reading would be a further sign that the economy has held up after a negative reading in the first quarter.
A separate Reuters poll showed inflation holding steady, with the index of core personal consumption expenditures — the Fed’s preferred metric of inflation that strips out volatile food and energy prices — expected to have risen 2.9 per cent in the month, unchanged from the rate in August.
The BEA’s double postponement came after the Bureau of Labor Statistics said that its closely watched report on non-farm payrolls for October had been cancelled outright.
Fed chair Jay Powell said last month that the lack of adequate data caused by the shutdown would be a factor in policymakers’ thinking. “What do you do when you’re driving in the fog? You slow down,” Powell said, adding that there was “a possibility” this would influence the debate at next month’s meeting.
Questions have also surfaced over the true health of the world’s largest economy and whether investments in artificial intelligence have masked other issues. Last month, the IMF upgraded its outlook for the US but warned that an “investment surge” in AI had helped the economy avoid a slowdown. Alexandra White
What will the UK Budget mean for sterling?
The pound has weakened in recent weeks, falling to its lowest against the euro in two years as weak inflation and poor economic data opened the door to more Bank of England interest rate cuts.
Also weighing on sterling have been fiscal concerns, underlined by the UK government dropping plans to raise income tax in Wednesday’s Budget — with investors closely tracking the government’s commitment to balancing its books.
“There’s a lot of bad news already priced into sterling,” said Steven Englander, head of FX research at Standard Chartered, pointing to the government’s fiscal “black hole”.
Analysts say this could go one of two ways. If investors view the government’s policies as doing enough to restore health to public finances — with a comfortable margin of spending “headroom” — then “the pound will appreciate, because some of this risk premium will be priced out”, said Tomasz Wieladek, chief European economist at T Rowe Price. If not, the pound could stay low, or weaken further.
“The issue will be whether the market believes that the policies that are announced are going to be effective, and getting to the objectives they’ve declared,” said Englander.
But many analysts see the Budget as likely to be negative for the pound if the government tightens the public finances, sapping growth, but also manages to enact measures that reduce inflation.
“Anything that over the next year or two reduces the disposable income of households, the Bank of England will see as a shock to demand, and cut rates more than expected,” delivering bad news for sterling, Wieladek added.
There is also the continued undercurrent of a potential leadership challenge to Prime Minister Sir Keir Starmer, especially if the Budget proves unpopular with those on the left of the ruling Labour party.
“Lingering political risks are unlikely to allow for a full removal of [sterling’s] risk premium, even in the event of a smoothly delivered budget from a market perspective,” said Shreyas Gopal, FX strategist at Deutsche Bank. Rachel Rees
Will Germany continue to disappoint?
After the November flash estimate for Germany’s purchasing managers’ indices on Friday suggested that manufacturing in the country had fallen ever deeper into contraction, all eyes will be on a flurry of economic data to be released from Monday.
The all-important Ifo business climate survey, to be published by the Munich-based think-tank at the start of the week, is expected to edge up by 0.1 points to 88.5, as analysts polled by Reuters forecast that the assessment of current conditions will have improved a bit in November.
Europe’s largest economy narrowly avoided a technical recession in the third quarter as it stagnated after a 0.1 per cent decline in the second. The Bundesbank said on Thursday in its monthly report that the economy could continue to grow “slightly” in the final three months of the year. The country’s statistical office will release data on consumption, domestic investment and exports for the third quarter on Tuesday.
Despite the long-lasting economic slump, Germany’s labour market is still holding up strongly, with analysts expecting that unemployment, to be reported on Friday, will have remained flat at 2.9mn people in November. Inflation, also to be reported on Friday, is forecast to have risen by 0.1 percentage points to 2.4 per cent, well above the ECB’s medium-term 2 per cent target for the overall currency area. Olaf Storbeck