US: Strength in activity data likely caused by favourable seasonal adjustments
January US activity data was, in general, very strong with the economy adding half a million jobs, retail sales jumping 3% month-on-month, and the ISM services new orders sub-component surging 15 points to its strongest level for five months. We cautioned that the stark contrast in weather between December’s wintery, cold conditions that caused travel chaos and January’s almost spring-like temperatures played a big part in the strength of data, while favourable-looking seasonal adjustments appear to have given an additional boost.
This week we will get a first test of that hypothesis with the ISM manufacturing and service sector reports for February. February hasn’t been especially cold, but it has been closer to the seasonal norms so we expect to see a partial correction in the ISM services indices. The manufacturing index should move higher though, aided by the China re-opening story, while the more positive European energy backdrop could also be supportive. Meanwhile, durable goods orders should fall quite a lot, but this is entirely due to volatility in Boeing aircraft orders – the company received 55 orders for aircraft in January, down from 250 in December. Outside of transportation, orders are likely to be flat.
There will also be plenty of housing data to take a look at. New home sales may get a bit of a lift due to the pleasant weather conditions in January, but the fact that mortgage applications for home purchases have halved since their peak is a huge structural headwind to overcome. Moreover, prices will remain under downward pressure given that demand has fallen so substantially, but the lack of supply means a collapse in pricing looks unlikely at this stage. There are lots of Fed speakers scheduled, but the message will remain that ongoing interest rate hikes should be expected until there is more confidence that inflation is under control.
Key events in developed markets next week
