| By Yonatan Katz and Leader Capital Markets economists
| Israel: The increase in wages the business continues
In October, it rose by 0.43% (seasonally adjusted) and by 5.4% a year ago. Considering the fact that wages in the public sector have hardly increased, this is a rapid rate of wage increase in the business sector of more than 6.5%. In the months of August-October, the average salary (annual trend data) increased by 6.8% in industry, 5.9% in construction, 7.9% in trade and a moderate rate of 3.5% in the information and communication industries (high tech).
The labor market remains tight, a fact that puts upward pressure on wages, especially in industries that serve local demand. In the coming years, the gap that has opened up between public and business wages is expected to partially close, which is expected to continue to contribute to inflationary pressures.
| The Bank of Israel identifies a processJM liveand directed but worried about Mad from the policy fiscal
The Bank of Israel raised interest rates by 0.5% to 3.75% (as expected by most forecasters). In the announcement, the Bank of Israel identifies processes that may mitigate: a moderation in some of the index’s items (although inflation is still affected by strong local demand), a certain moderation in economic activity relative to the first half of 2022, and a still tight labor market but with signs of easing in some of the data.
This is despite the fact that inflation is still very “horizontal”: in November 72.1% of the index items rose by more than 3% a year ago (down from 72.9% in October). The Bank of Israel derives encouragement from the decrease in the number of index items which rose by more than 7%.
Other slides indicate stability in growth, the rate of consumption and a slight increase in unemployment. Several interesting titles:
A survey of trends in the business sector “continues to indicate a positive assessment of the businesses in relation to their situation”, with a decrease in expectations for a change in the number of employed.
“Credit card purchase data is consistent with long-term trends”
From June, “a slight upward trend was recorded in the unemployment rate, which remains at a very low level.”
A “rapid increase in the nominal salary” appears
“The volume of mortgages is approaching the average level before the corona crisis”: that is, according to the Bank of Israel, we are returning to a state of equilibrium and not below it.
The Bank of Israel’s macro forecast predicts an interest rate of 4% in the fourth quarter of 2023 (updated from 3.5% in the third quarter of the October forecast), inflation of 3% in 2023 (updated from 2.5%), but a more moderate 2.8 % (updated from 3%).
The budget deficit forecast was updated to 1.8% (from 1.0%) and 2.1% in 2024, however, not all coalition agreements are priced in this forecast.
At a press conference, the governor expressed concern about the government’s fiscal policy and hinted that this concern may explain the recent devaluation and weakness (relative to the world) in the Israeli stock market.
A forecast of 4% does not assume an interest rate increase beyond 4% and its lowering during the year, but one more increase of 0.25% and stability in the interest rate throughout the year. The governor emphasized that if there is damage to fiscal credibility (and continued devaluation of the shekel), the monetary policy will respond accordingly:
“ There are also risks local for the forecastwhich depend on the arbitration policyLith. The more it will be significantly more expansive than the one estimated in the forecast, so The expected inflation, the debt to GDP ratio and the returns on the capital market may be higherR“
Our interpretation: the stabilization of the interest rate around 4% seems reasonable in an optimistic scenario regarding the shekel. It is easy to see the interest rate rising beyond this level in the scenario of an “too” expansionary fiscal policy and damage to credibility (and a weakened shekel).
| Hand“To: RGod“B: A positive combination of Natand employment
In December, the relatively fast increase (relative to expectations) continued, about 223 thousand people (the expectation was for 200 thousand), and in addition it moderated with an increase of 0.3% in December (the expectation was for 0.4%). The November figure was revised to 0.4% (from 0.6%), so the annual rate of wage growth moderated to 4.6% from 4.9% (in the November publication).
This is a positive development, although in order to return to an environment of 2% the salary increase rate must decrease towards 3.5%. 40 thousand employed in industry/construction and 180 thousand in the service sectors were added. The revisions back in the months of October-November subtracted 28 thousand employed.
No less significant was the sharp increase in the number of employed people in the household survey at 717 thousand employed, after several months of weakness in this survey relative to the regular workforce surveys. Many believed that perhaps this weakness in the household survey more correctly reflects the situation in the labor market (relative to the rapid increase in the number of employed people in the personnel survey).
It turns out that this hypothesis is not entirely correct. A rapid increase in the number of employed persons in the household survey resulted in a decrease in to 3.5% from 3.7%, while increasing the participation rate to 62.3% from 62.2%. There is still a gap in the number of employees between the series, but it is starting to close:
Two more figures point to the strength of the labor market and the American economy: there was an increase in the number of vacancies in November to 10.45 million people and a decrease in the number of job seekers in the last week.
| Weakness in the services purchasing managers index
We have previously emphasized the importance of an index in the service industries ISM (non-manufacturing) which represents the bulk of the American business sector (more than an industry index). The index decreased in December by 6.9 points to 49.6 points and fell to the lowest level since May 20. The business activity component decreased by 10 points to 54.7 points (still a level indicating expansion), the orders component decreased by 10.8 points to 45.2 points (contraction), the employment component decreased by 1.7 points to 49.8 points (contraction).
The “delivery times” component decreased and contributed to the decrease in the overall index, although this is a positive development (relief in supply chain pressures). The component of export orders rose.
The price component (an important component for gauging inflationary pressures in the service sectors) decreased slightly to 67.4 points, but remained relatively high and indicates continued pressure for price increases, compared to the sharp drop in the price component in industry:
As far as the Fed is concerned, the moderation in the pace of wage increases and the weakness in the purchasing managers’ indices support the Ionian approach of moving to an interest rate increase of 0.25% in the upcoming decision, subject to a “reasonable” inflation figure next week around 0.2%. On Friday, the estimate of “terminal” interest was strengthened by 4.75% and not 5%.
| youAnd here: HuhTza in core inflation
In December, the total was a pleasant surprise and was expected to be 9.2% (the expectation was 9.5%) from 10% in November, this against the background of particularly low inflation in Germany. More significant also for the ECB was the acceleration in (the index without the energy and food items) to 5.2% (from 5.0%). Excluding energy, inflation rose 7.2% from 7.0%.
Services prices increased by 4.4% (acceleration from 4.2%), product prices increased by 6.4% (acceleration from 6.1%), and food prices increased by 13.8% (acceleration from 13.6%). This figure supports a further increase by the ECB. The market is starting to price basic interest rates in Europe close to 3.5%.
| GandM AJN: Continued expansion in activity with Taccording to a certain moderation
We have previously emphasized the importance of a trend survey in the CBS business sector, this in the absence of purchasing managers’ indices in the service sectors and a very volatile PMI index for industry. The current situation component stood at 23.07 points, a moderate decrease from 24.34 in November. The average level in 2019 (on the eve of the Corona ) stood at 24.4 points.
The expectation of a change in activity in the next three months remains positive, but slightly moderated to 3.97 points (net balance) from 8.57. On average in 2019, this component was 6.5 points.
The expectation of a change in employment has stabilized after several months of moderation. The expected change in the number of employed people still indicates expansion (a positive net balance of 3.95 points). On average in 2019, the expected change in employment component was 4.2 points, only slightly higher than the situation today. The sharp drop in the expected employment component occurred in the high-tech industries, which dropped to 0.39 from 8.49 points.
The high-tech services sector (communication and information) continues to expect an increase in exports with a high positive net balance of 14.63 points. This is a relatively high level compared to previous years. In 2021, this component stood at 17.8 points, only slightly higher than the situation today:
The strength of the limitation of the lack of workers is decreasing in most industries. A significant relief was recorded in the trade sector.
Inflation expectations one year ahead fell to 2.87% from a peak of 3.14% in August:
Meanings: In the meantime, the Israeli economy continues to expand at a reasonable pace with an expectation of continued expansion (albeit at a somewhat moderate pace compared to the previous months) and an expectation of continued absorption of workers (except in the hi-tech industries). From the point of view of the Bank of Israel, this is a green light for continued monetary tightening, also against the background of the expected acceleration of inflation in the coming months (at an annual rate), the creeping devaluation trend of the shekel and the fear of an inflationary effect from the wage agreements in the public sector in the coming years.
PDF Document: Weekly Macro Review by Leader Capital Markets Economists
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