Key points:

• UK jobs and pay down sharply
• Japanese economy watchers downbeat about the outlook
• Australian business confidence worsens too

UK employment falls to 3-year low with worse to come:
Conditions in the UK labour market deteriorated notably again last month. Having dropped only 20k in June, the number of people in paid employment fell a steep 114k in July, to be down 742k (2.6%) from the peak in January and 626k (2.2%) from a year earlier, to the lowest level in more than three years.

While the inflow into paid employment picked up for the first time since January as conditions in some sectors normalised, it remained well below pre-Covid levels. And while the number of vacancies in the three months to July rose about 10% from the previous month’s record low to 370k, the outflow from paid employment also rose for the first time since April. The pace of that outflow remained below the average for the pre-pandemic period. But a far more severe shake-out looks imminent.

Indeed, in June, about 7.5mn people were still temporarily away from work, largely furloughed, with over 3 million of these having been off for three months or more. (There were also about 300k away from work because of the pandemic and receiving no pay at all in June.) And the phasing out of the government’s Job Retention Scheme from now to October seems bound to be the trigger for a marked acceleration of redundancies. Indeed, the past few weeks have already brought announcements of tens of thousands of job losses from high-profile firms, while a CIPD survey released earlier this week suggested that one in three employers plans imminent job cuts.

The total number of weekly hours worked in Q2 fell by a record 18.4%Q/Q to the lowest level since late 1994. So, unsurprisingly, the impact of the pandemic on pay was marked too. The three months to June 2020 saw total nominal pay fall 1.2%Y/Y to be down a hefty 2.0%Y/Y in real terms. While the drop was led by bonuses (down 19.4%Y/Y), regular nominal pay fell 0.2%Y/Y, the first ever drop on the series dating back to 2001. Meanwhile, the claimant count – which includes some low income workers as well as those out of work – rose in July to 2.7mn, more than double the level in March. And the number of people on zero-hours contracts rose a hefty 156k (17.4%) from a year earlier to above 1mn for the first time in the three months to June.

Today’s other data might have appeared rather more encouraging, with the BRC’s survey measure of retail sales up 3.2%Y/Y in July, the second successive positive month of growth. Sales growth was driven by food, up 6.1%3M/Y, as well as furniture and other items associated with home-working. As the labour market deteriorates further, however, the rebound in spending seems likely to fade fast.

Japanese economy watchers downbeat as pandemic spreads:
The latest Japanese economy watchers survey was decidedly mixed. On the positive side, there was a further modest recovery in the headline current conditions DI in July, to 41.1, its highest since January, largely reflecting improved corporate-related demand in the non-manufacturing sector. In contrast, household-related demand was reportedly little changed as a deterioration in the retail sector offset a pickup in spending on services and housing. And, not least given the resurgence of coronavirus infections over recent weeks, economy watchers were seemingly more downbeat about the near-term outlook – indeed, the relevant index fell 8pts to its lowest level since April. Taken together with some still very subdued PMIs for that month – the composite PMI (44.9) remained firmly in contractionary territory for the sixth consecutive month – today’s survey adds to concerns about the pace of recovery going forward.

In terms of the banking sector, meanwhile, there was a slight moderation in loan demand last month, suggesting that firms saw less need for precautionary liquidity. In particular, outstanding loans rose just 0.3%M/M in July, with a modest decline in lending from city banks for the first time since February. As such, the annual pace of total lending growth moderated very slightly to 6.4%Y/Y, admittedly still the second-highest rate since the monthly series began in the early 1990s. The annual increase at city banks also fell back (down 0.8ppt to a still-strong 7.8%Y/Y), while lending at regional banks rose 0.4ppt to 4.9%Y/Y, the strongest for fourteen months.

Australian business confidence slips as payrolls fall in Victoria:
In Australia, NAB’s latest business survey similarly provided mixed messages. In particular, there was a further notable and broad-based recovery in business conditions reported in July, with the relevant index rising 8pts to 0, broadly back at pre-Covid levels. But this was still well below the long-run average. Moreover, the survey was conducted ahead of the escalation of Covid-related restrictions to stage 4 in Melbourne and stage 3 across the rest of the State of Victoria. And even ahead of tighter containment measures, the survey suggested that confidence remained extremely fragile – indeed, the headline index fell 14pts to -13.9, with a deterioration across all industries. And while the monthly drops were more modest than the average, confidence among construction firms and retailers remained the weakest among subsectors.

Unsurprisingly, the ABS’s weekly jobless figures showed that the number of payroll jobs fell in Victoria through July, by 1.5%, leaving them 6.7% below the level in mid-March. Elsewhere, there was a further pickup in jobs last month, albeit leaving the total number of payroll jobs little changed over the month as whole. And with restrictions having subsequently tightened further and concerns rising across other states too, we would expect to see some further reversal in jobs growth over coming weeks.

German investors forecast to be a touch more upbeat:
A relatively quiet day for euro economic news will bring the German ZEW confidence survey for August which is expected to signal that financial professionals are generally a little more optimistic about the current and near-term outlook despite signs of a pickup in new Covid cases in much of Europe.

The US data docket:
In the US, today will bring the latest NFIB small businesses optimism survey and PPI data for July.