Softer PMIs + mostly useless US data

• • • • December flash PMI results were mostly weaker, consistent with the forecast of a loss of global economic momentum into early 2026 (see charts).
      • It might have been better to have delayed US labour market and CPI reports for another month given distortions from the government shutdown (see charts).
      • The Chinese authorities have allowed the RMB to move above its central parity rate vs. the US dollar but continue to resist appreciation vs. the basket (see charts).
      • Japanese annual “global core” CPI inflation remained below 2% (see charts).
      • German manufacturing surveys weakened as expected but the ECB signalled a firm hold (see charts).
      • UK core CPI momentum has slowed sharply as policy effects fade but MPC hawks are proving surprisingly stubborn (see charts).

Global manufacturing PMI new orders and service new business indices likely fell in December, based on DM flash results:

Declines would be consistent with lagged money trends suggesting an economic slowdown into early 2026 followed by stabilisation / recovery in the spring.

US composite results were notably softer with smaller declines in Japan and the Eurozone but a positive UK surprise:

US private payrolls growth held up in October / November but the true picture may be flat, based on the average recent revision:

The suggestion that payrolls numbers are continuing to overstate growth is supported by comprehensive QCEW data showing a big shortfall in the year to June:

The unemployment rate climbed further between September and November but the rise at least partly reflects bias introduced by the failure to conduct an October survey:

The reported increase was due to temporary layoffs and people entering the labour force, rather than a rise in permanent job losers.

An apparent sharp slowdown in headline / core CPI momentum is even more suspect, with the BLS adopting an assumption of zero monthly change for some items with missing October data:

The Chinese authorities have allowed the RMB to move above its central parity rate vs. the US dollar but continue to intervene to prevent an appreciation vs. the basket:

The Bank of Japan hiked despite annual core CPI inflation – on the global definition excluding all food and energy – of below 2%:

German manufacturing surveys weakened, as had been suggested by lagged money trends and the earlier Sentix survey:

Still, the ECB signalled that it is firmly on hold, with staff forecasts for annual headline / core CPI inflation in 2026 revised higher:

Annual average inflation rates in 2026 are now 1.9% for headline and 2.2% for core vs. 1.7% and 1.9% respectively in September.

UK annual headline and core inflation surprised significantly to the downside in November:

Forecast: annual headline to fall to c.2% in Q2 2026 and undershoot in H2.

Adjusted core prices rose by 1.9% annualised in the three months to November from the previous three months, and by 1.8% between August and November:

The headline surprise partly reflected a drop in food inflation, with a further catch-down towards the Eurozone level likely:

Job losses appear to have accelerated in the run-up to last month’s Budget:

However, vacancies have stabilised, as had been indicated by Indeed data:

Annual growth of private regular earnings fell further but MPC hawks are expressing concern about too-high survey indications for next year:

Worries are overblown, with wage demands likely to ratchet down with headline inflation.