Brief Macro: When Job ‘Quality’ Prevailed over ‘Headcount’ and more

In this briefing:

1. When Job ‘Quality’ Prevailed over ‘Headcount’
2. China Economics:  China’s Strategy on Trade War Has Worked
3. FLASH: UK Denying No Deal Does Not Reduce Risk
4. UK Fiscal: Waiting While Brexit Burns
5. SHIBOR and Rates

1. When Job ‘Quality’ Prevailed over ‘Headcount’

• A 387k decline in employment didn’t weigh on the jobless rate of 5.2% according to the latest labor survey data. As the labor participation rate declined in 4Q18, roughly 2.1mn of those in the labor pool voluntarily passed up the job search, to ease any employment demand-supply mismatch.

• For those employed particularly in the non-farm, production sectors led by manufacturing and construction, the quality of jobs generated dominated the lack of headcount gains in determining incomes, if not, uplifting purchasing power. If we exclude direct government job creation from the labor stats, we obtain a non-farm, private job creation of 1.1mn (vs 3Q18: -8.6k) up 3.8%YoY. Average weekly work hours were 43.2 versus 40.6 a year-ago suggesting more overtime work. Salaried workers grew by 1.4mn (+5.6%YoY) employed mainly from private establishments. Underemployment fell to 15.6% in the latest job survey vs 18% a year-ago.

• As inflation recedes, the robust non-farm employment and better job quality won’t be compelling for policymakers to rush any form of monetary accommodation. Since the jobs data or GDP prospects are not as vulnerable to sharp downswings due to onshore catalysts, e.g., upbeat public investments, consumption recovery, despite a less-than-encouraging global backdrop, the Central Bank may focus on possible risk of a liquidity crunch and emergence of positive, real interest rates in determining the policy options for monetary accommodation this year.

2. China Economics:  China’s Strategy on Trade War Has Worked

First, during the past couple of weeks, the most important event regarding the Chinese economy is the China US trade talk.  It is reported that both sides have made a preliminary agreement on trade war truce. It is an extraordinary development.   At the beginning of this China US trade war, most analysts had underestimated the seriousness of this trade conflict. Then after a series of escalations, analysts tend to overestimate this conflict by exploring the possibility of a full-scale conflict between China and US including national security, military and economic competition etc. we agree that China and US are in direct competition in almost every field. The issue is President Trump. He has to deal with the internal issues including the Muller investigation and the Democrats. So far, he has failed to make essential progress in dealing with internal opponents. He also just failed another Kim Trump summit. In our opinion, he is keen to make a deal with China. He is in a much weaker position than President Xi. Although at the beginning President Xi was under some criticism, currently, his authority is with no significant challenge. President Xi has also pretended to be humble when dealing with Trump. In our opinion, China’s strategy, such as buying time by deliberate delays or deceptions, has worked. 

3. FLASH: UK Denying No Deal Does Not Reduce Risk

• The UK parliament voted to reject leaving with no agreement, as widely expected. Shambolic management around that looks set to force ministerial resignation.
• Parliament continues to indulgence itself in motions against leaving the EU without a deal, but that doesn’t stop it being the default defined by current laws.
• I still see the relative probabilities of a deal, no deal, and no Brexit at 45:35:20.

4. UK Fiscal: Waiting While Brexit Burns

• The Spring Statement revealed marginally more fiscal room and no significant policy changes, consistent with the Chancellor’s intent to downgrade the event.
• Fiscal policy can respond to the Brexit outcome, despite total financing rising on a heavy redemption profile. Net liabilities look weirdly skewed away from gilts.
• Recent complaints about the RPI are being considered with a response planned for April. Changes to its use are more likely than to the measure’s methodology.

5. SHIBOR and Rates

There are two important points worth noting. First, China remains an overwhelmingly short term capital market from the money markets to structured deposits to bond duration which remain heavily tilted towards durations under five years. Second, what we are seeing in the money markets accords with the PBOC unofficial policy of trying to keep the headline rate unchanged but nudge down the unofficial rates.