UK labour supply and demand imbalances continue

Emily Nicol

Japanese consumers the most downbeat since start of 2021 amid higher price expectations
Today’s Japanese sentiment surveys offered a fairly downbeat assessment of conditions at the end of the first quarter. Perhaps most notable was consumer confidence, which saw the headline indicator fall for the third consecutive month in March and by 2.4pts – the largest monthly drop since the onset of the pandemic – to 32.8, a fourteen-month low and well below the long-run average (40.6). This left the quarterly index in Q1 some 3½pts lower than Q4.

While the weakness was broad-based, there was striking deterioration in consumers’ perceptions of their overall livelihood, with the relevant index down 3.9pts to 31.3, the lowest since June 2020, no doubt in part reflecting a hit to real disposable incomes amid rising inflation. Indeed, today’s survey saw the share of households expecting prices to rise over the coming twelve months rise to a survey-record 92%. And so it was perhaps inevitable that households’ willingness to buy durable also fell last month, with the relevant index down for the ninth consecutive month and by 3.7pts to 27.8, a 22-month low, and consistent with our view that household consumption contracted in Q1.

Admittedly, this survey was conducted ahead of the government’s lifting of restrictions on 21 March. But while we might expect to see some bounce back in confidence this month, with prices set to rise further over coming months any rebound in household spending might well prove somewhat limited.

Japan’s economy watchers more upbeat at the end of Q1
In contrast, the Cabinet Office’s Economy Watchers Survey (conducted after the removal of domestic restrictions) reported a marked improvement in conditions, with the headline sentiment diffusion index (DI) jumping 10.1pts to 47.8. Nevertheless, this still left the DI below the key-50 mark indicating “worsening” conditions and almost 10pts lower than the December peak, therefore leaving the quarterly index in Q1 some 15pts lower than in Q4 average.

Within the detail, the rebound principally reflected household-related demand, with the relevant DI up 13.1pts to 46.8 due to increased demand for food and beverage items. The pickup in corporate-related demand was more limited and largely reflected the non-manufacturing sector, where the respective DI rose 3.6pts to 45.7. The survey also suggested that economy watchers were more optimistic about the outlook over the coming three months, with the future conditions DI up a further 5.7pts to the key-50 mark.

UK report on jobs continues to flag ongoing demand-supply imbalances
Today’s REC/KPMG report of UK report made for familiar reading, with the ongoing demand-supply imbalance for labour continuing to add upwards pressures on wages. While the survey implied a softer pace of hiring in March – the index reflecting permanent places edged down to its softest in a year, while the respective index for temporary billings stood at an eleven-month low – it was still remained at a historically high level. Moreover, it reflected a lack of supply of appropriate candidates, as pandemic and war-related uncertainty and fewer EU workers had limited worker availability, rather than softer demand. Indeed, the survey implied that vacancies rose for the fourteenth consecutive month in March and at the quickest rate since September. So, the persisting imbalance of labour supply and demand continued to drive starting salaries higher, with the rate of increase in permanent roles the steepest in the survey history.

A relatively quiet day for euro area and US data releases
A relatively quiet end to the week for euro area releases brought the Spanish IP numbers for February. These showed that industrial output rose 0.9%M/M on the back of solid growth in production of consumer (2.0%M/M), intermediate (1.7%M/M) and capital goods (1.1%M/M). Italian retail sales for February are also due. In the US, meanwhile, today brings revised wholesalers inventories and sales numbers for February. Fed governors Bostic and Evans are due to speak at separate events.

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