YOUR DAILY EDGE: 5 FEBRUARY 2025

JOLTS

For-Hire Signs Become Less Common

US labor vacancies declined sharply to end the year, according to this morning’s Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics. The result jolted the stock market higher, as equity traders know that the Federal Reserve may tolerate a little inflation but is extremely sensitive to decelerating labor conditions.

IB’s account of the JOLTS report omits to highlight the changing trend in its 3-m m.a.

Indeed’s Job Postings through Jan. 24 confirm that the slide in job openings has stalled.

We get the U.S. Services PMIs later today and the employment report Friday but the flash PMI released on January 24 had this warning on employment:

Optimism about the year ahead was matched by a jump in hiring. Employment rose in January at the fastest rate for two-and-a-half years, up for a second successive month after four months of job shedding. The improvement was led by a surge in service sector hiring, where jobs were added at the sharpest rate for 30 months, though manufacturing payroll growth also edged up to a six-month high. The latter remained modest, however, reflecting ongoing cost concerns at producers amid low sales. Firms more broadly also continued to report ongoing issues with poor staff availability.

SERVICES PMIs

Eurozone output rises slightly at start of 2025

The HCOB Eurozone Services PMI Business Activity Index signalled another monthly increase in services output during January. At 51.3, the measure was only slightly below December’s 51.6, suggesting that December’s modest rise was followed by another similarly sized expansion as 2025 got underway.

January survey data indicated an improvement in demand conditions for eurozone services companies as new orders rose for a second month in a row. The rate of increase accelerated slightly but remained weak. Sales growth was domestic driven as the latest survey data showed new export business decreasing, albeit more slowly.

Service providers continued to work through their orders pending completion, and to a slightly quicker degree than in December. A faster rate of reduction in backlogs came amid stronger hiring activity. Employment growth picked up from that seen at the end of 2024.

Inflation remained stubborn in January. Operating costs for services companies rose at the steepest pace in nine months, although selling price inflation held steady, matching that seen in December (which was the strongest since May 2024).

Eurozone services companies remained positive towards the 12-month outlook for activity, although growth projections were fractionally weaker than at the end of last year and well below the long-term average.

The seasonally adjusted HCOB Eurozone Composite PMI Output Index posted above the critical 50.0 level that separates growth from decline during January, rising from 49.6 in December to 50.2. As a result, this indicated the first monthly increase in private sector business activity since August last year. A slower fall in factory production was central to January’s overall expansion, sector data showed, as services activity posted a slightly softer rise on the month.

Spain was again the main growth engine of the single-currency market, national PMI data revealed, although output grew at a weaker rate than at the end of 2024. However, a key reason behind the broader upturn was Germany, which saw its best monthly performance since last May. Still, with an index reading of 50.5, January’s expansion was only marginal. Meanwhile, Italy’s economy was again virtually stagnant, and France endured a fifth successive contraction in private sector business activity.

Output growth was achieved at the start of the year despite an eighth successive decline in new business inflows. A marked drag on sales came from exports*, which fell at a considerably stronger pace than that seen for order books in aggregate. That said, total new business decreased only marginally overall and to the softest degree in the current sequence.

A sustained reduction in demand for eurozone goods and services implied that activity growth was driven by work on existing business. Backlogged orders fell for a twenty-second month in a row at the start of 2025, with both manufacturers and service providers clearing outstanding work.

A near-stabilisation of employment was also a boost for activity in January. Although workforce numbers across the euro area fell, they did so to just a marginal extent. Sector data indicated that job losses were confined to manufacturing as services firms saw a slightly stronger rise in net employment at the start of 2025.

Eurozone companies looked to the future with greater optimism in January. The pick-up in positive sentiment meant that firms’ growth expectations were their most robust since July 2024. Although, confidence was weak when compared against the long-term average. Notably, manufacturers were more bullish than services companies for the first time in three years.

Turning to prices, January survey data signalled an intensification of cost pressures across the eurozone. The rate of input price inflation accelerated to a 21-month high and was above the long-run series trend. Both monitored sectors recorded stronger rises in their operating expenses at the beginning of the year. Subsequently, euro area firms raised their prices charged more aggressively. Output prices rose at the quickest pace in five months.

China: Business activity growth softens at the start of 2025

The seasonally adjusted headline Caixin China General Services Business Activity Index posted 51.0 in January, down from 52.2 in December. This extended the period of expansion that commenced in January 2023. The pace of business activity growth softened since December, however, and was modest.

Higher new business, underpinned by improvements in underlying demand and successful business development efforts, supported the rise in services activity at the start of 2025. This included foreign demand, with new export business returning to growth after falling at the end of 2024. The rate of overall new business growth was modest, however, having eased since December.

The softening of new business growth and better efficiency at service providers led to the first decline in the level of unfinished business since July 2024. Moreover, the rate of decline was the most pronounced in two-and-a-half years despite being marginal. The lack of capacity pressure therefore led to further job shedding in the service sector at the start of the year. Both resignations and redundancies contributed to the fastest decline in services employment in China since April last year, according to panellists.

Meanwhile, cost pressures intensified for Chinese services firms at the start of 2025. Higher raw material and labour costs were often mentioned by panellists as reasons for the latest rise in average input prices. The rate of cost inflation, though marginal, was the highest in three months.

As a result of rising input costs, Chinese service providers raised their selling prices for a second straight month in January. The increase in average charges was fractional, however, and smaller than in December. The latest softening of charge inflation was reflective of firms’ willingness to partially absorb price increases in order to support sales.

Finally, sentiment in the Chinese service sector was positive at the start of 2025. Firms expressed hopes that business growth plans and supportive government policies can support sales in the next 12 months. Despite rising from December, the level of confidence remained below-average as some firms indicated concerns over heightening competition and trade uncertainties negatively affecting demand for services from China.