1、 Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.When will the labour cycle end?In most cycles in the 70 years since Bretton Woods,slowdowns have become recessions in the US
2、and then in Europe.The importance of the Service sector has grown,and the importance of manufacturing has declined.In Germany the percentage of the workforce employed in manufacturing has fallen from 39.5%in 1970 to 17%currently.There is a manufacturing slowdown,but is it worse than that?We can see
3、from employment data,wide sentiment indicators and cap goods results that there is a slowdown in the manufacturing sector.Historical precedent suggests that for this to become a recession it needs to worsen in the US and impact the service sector.If we look at the labour data the current weakness se
4、ems largely confined to the manufacturing sector and to be less pronounced in the US.It is possible that the Bretton Woods era is coming to an end,redefined by new trade policies.One day the US economy may no longer be the key recession barometer,but for now we assume it remains our best guide.Job v
5、acancy growth inevitably slows as a cycle progresses and this seems little different but we do not see the sharp falls one would associate with recession.Neither do we see the sharp declines in job types that flag marginal demand.Temps,truck drivers and employment agencies have consistently flagged
6、early any deterioration in labour demand.They remain stable.European temp demand is poor in volume terms but not necessarily as bad in value terms.Supply and/or demand Although there is a clear weakness in European demand for manufacturing labour,it seems there is a global supply squeeze,leading to
7、some wage inflation.In the US,temp wage inflation is 8.0%and job switchers under 25 years old are seeing 5.5%wage inflation.In Europe,Dutch temps are seeing 4.0%wage inflation and largely blue collar French ones 2.5%.There is clearly some demand.Volume growth is weaker in the labour markets but it i
8、s a mixed picture with skills supply the issue in some sectors and in others it is demand.Finding the correct staff increasingly means paying up.Summer black spot There is one key caveat,however:we are about to go into the Northern Hemisphere summer lull.July and August are thin months and we will n
9、ot likely get a clear signal until September data are available in early or mid-October.Matthew Lloyd*Head of UK MidCap Equity Research HSBC Bank plc +44 20 7991 6799 Rajesh Kumar*Pan-European Business Services Equity Analyst HSBC Bank plc +44 20 7991 1629 Daniel Cowan*,CFA UK MidCap Equity Analyst
10、HSBC Bank plc +44 20 3359 6011 Chirag Vadhia*Analyst HSBC Bank plc +44 20 3268 5721 Issuer of report:HSBC Bank plc 6 August 2019*Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations View HSBC Global Research at:https:/ Workers of the
11、 World#9 Equities Commercial Srvcs&Supplies Europe Demand weakness is centred on manufacturing and has not yet impacted the larger service sector,which bodes well The US,for many decades the best guide to whether a slowdown in Europe will slip into recession,looks stable Worldwide there is more wage
12、 inflation,suggesting some of the slowing is a supply issue,as opposed to a demand issue alone Dig Data Series:Labour markets 2 Equities Commercial Srvcs&Supplies 6 August 2019 US leads global labour market cycles 3 Manufacturing gets the headlines,but 6 Scarcity and wage inflation 9 1.Labour market
13、 in the US 12 1.1 US volume growth:Slow growth but no definite signs of rolling over yet 13 1.2 US value growth:Candidate scarcity driving wage growth 14 1.3 organic growth of staffers in the US 15 2.Labour market in France 16 2.1 France volume growth:Gloomy picture in France marred by several exter
14、nal factors 17 2.2 France value growth:helped by wages 18 2.3 Organic growth of staffers in France 19 3.Labour market in Netherlands 20 3.1 Netherlands volume growth:Dutch temp market seeing weakness 21 3.2 Netherlands value growth:turnover helped by underlying wage inflation 22 3.3 Organic growth o
15、f staffers in Benelux 23 4.Labour market in Germany 24 4.1 Germany volume growth:Job vacancies see weakness lead by a blue collar slowdown 25 4.2 Germany value growth:Strong wage inflation can act as a growth multiplier for the staffers 26 4.3 Organic growth of staffers in Germany 27 5.Labour market
16、 in the UK 28 5.1 UK volume growth:UK slowed,but it has its own woes 29 5.2 UK value growth:UK slowed,but it has its own woes 30 5.3 Organic growth of staffers in the UK 31 6.Labour market in Emerging markets 32 Australia temps and job vacancies seeing weakness on tough comps 33 Emerging Markets are
17、 under pressure 34 Brazilian hiring continues to be weak 35 7.Equity markets move with marginal demand for labour 36 8.Staffing multiples vs organic growth 39 9.Manpower hiring survey vs PMI data 40 Disclosure appendix 41 Disclaimer 44 Contents 3 Equities Commercial Srvcs&Supplies 6 August 2019 US l
18、abour market,riding on slow growth path Growth in temps leads other economic indicators such as employment growth in the US.And temp growth in other geographies track temps growth in the US.As we enter the statistically less significant summer months in the Northern hemisphere,the indicators in the
19、US are holding up well so far.Apart from the temp numbers,we look at truck drivers and placement agencies volume numbers as excellent leading indicators.Neither of them show any worrying signs as yet.The weakness we see in European temps seems to be a product of weak demand in the manufacturing sect
20、or with service sector growth,and higher wage contractor growth remaining stronger in the service sector.This has happened before and not resulted in recession so long as the US economy has been strong enough and the service sector has remained strong.Looking at the US for clues as to the strength a
21、nd breadth of any slowdown remains our best guide.It may be that this is not correct in this cycle,as world trade issues may alter the established pattern of the US leading Europe.That said,there is no evidence that the US is not still our best lead for Europe.This slowdown,when viewed from the pers
22、pective of the US,looks less worrisome than 2016,when temp growth went briefly negative.Leading indicators do not show any warning signs yet Looking at other broad indicators such as conference board,small business index and Philadelphia business activity and new orders,a recession which implies hig
23、h negative growth rates looks less plausible.Even the truck drivers and employment agencies that have been excellent indicators of labour demand in the past do not show any warning signs so far.The staffers have utilised the last phase of the cycle leading up to a recession in the previous cycles.We
24、 highlighted this in our notes Is the US Yield curve inverting a positive?,26 March 2019 and After the inversion:Late as well as early cyclicals,26 March 2019,when looking at what investors might miss out during such times.US leads global labour market cycles US temps are a good leading indicator in
25、 the US and employment growth tends to follow Historically temp growth in European nations such as Germany,France and the Netherlands have followed trends in US temp growth The growth pattern in the US does not indicate recession yet 4 Equities Commercial Srvcs&Supplies 6 August 2019 Historically tr
26、ends in temps lead employment growth in the US and Europe tend to follow Employment growth in the US is healthy and does not indicate recession yet;Europe tends to follow Source:HSBC calculations,Refinitiv Datastream*Grey lines indicate point of yield inversion and pink shading refers to recession p
27、eriod-80%-60%-40%-20%0%20%40%60%80%-40%-30%-20%-10%0%10%20%30%40%Jul-75Jul-76Jul-77Jul-78Jul-79Jul-80Jul-81Jul-82Jul-83Jul-84Jul-85Jul-86Jul-87Jul-88Jul-89Jul-90Jul-91Jul-92Jul-93Jul-94Jul-95Jul-96Jul-97Jul-98Jul-99Jul-00Jul-01Jul-02Jul-03Jul-04Jul-05Jul-06Jul-07Jul-08Jul-09Jul-10Jul-11Jul-12Jul-13J
28、ul-14Jul-15Jul-16Jul-17Jul-18Jul-19 YoY growth in Temps,SATotal employment growth in US(RHS)YOY growth in France temps(RHS)YOY growth in German Vacancies(RHS)Netherlands Market-Hours worked y-o-y 5 Equities Commercial Srvcs&Supplies 6 August 2019 Leading indicators holding up well Employment agencie
29、s and Freight trucking not showing any signs of deterioration US Labour market,riding on slow growth path We have observed employment growth in employment agencies and truck drivers have acted as excellent leading indicators historically.Both these indicators do not yet reflect any kind of slowing T
30、ruck drivers employment was up 1.7%in June(vs.1.7%in May)US employment placement agencies growth was up 3.3%in June(vs.2.9%in May).Source:HSBC calculations,BLS Conference board indicator and US small business diffusion index Philadelphia Business activity and new orders index Source:Refinitiv Datast
31、ream Source:Refinitiv Datastream -25.0%-20.0%-15.0%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%Jun-91Jun-93Jun-95Jun-97Jun-99Jun-01Jun-03Jun-05Jun-07Jun-09Jun-11Jun-13Jun-15Jun-17Jun-19US employed-Employment agenciesUS employed-General freight trucking80859095100105110115120125-25%-20%-15%-10%-5%0%5%10%15%Jun
32、-91Jun-93Jun-95Jun-97Jun-99Jun-01Jun-03Jun-05Jun-07Jun-09Jun-11Jun-13Jun-15Jun-17Jun-19Conference board Indicator-USUS small business diffusion index(RHS)-60-40-200204060Jul-89Jul-91Jul-93Jul-95Jul-97Jul-99Jul-01Jul-03Jul-05Jul-07Jul-09Jul-11Jul-13Jul-15Jul-17Jul-19Philadephia Business ActivityPhila
33、dephia new orders 6 Equities Commercial Srvcs&Supplies 6 August 2019 Weakness confined to manufacturing so far Looking at Manufacturing indicators and worrying about impending recession seems to us to capture the current market mood.Current labour market weakness seen across geographies looks largel
34、y confined to the manufacturing sector.The July print of PMI from IHS Markit shows a similar trend.Barring the US,which is stable,most of the manufacturing PMIs are contracting.The activity levels in the Service sector look healthy;Service PMIs indicate healthy levels well above 50.However,Manufactu
35、ring PMIs have been seeing contraction.As we compare the current workforce with past levels,the manufacturing workforce is a much smaller proportion of the overall labour force.This implies a weakness here affects the overall economy much less than in the past.This change in the balance of the econo
36、my means the importance of manufacturing to the overall health of the economy is diminishing.Labour demand in the manufacturing sector may be weakening and also it is far less of a tell on the broader economy than was once the case.Indeed,while profit warnings from industrials should not be ignored,
37、with each cycle they are less likely to predict impending recession.Therefore indicators of a looming recession,cycle by cycle,are becoming more and more about how the service sector is performing.Manufacturing gets the headlines,but Employees in Manufacturing industry constituted c.39%of the labour
38、 force in the US in 1950 but this has come down to c.14%currently The trend has been similar in other European nations with an increasing Service contribution to the economy Current weakness seen across the globe has been predominantly led by Manufacturing,whereas Service has been holding up so far
39、7 Equities Commercial Srvcs&Supplies 6 August 2019 Proportion of labour force in Manufacturing(%)Manufacturing-led weakness Most of the weakness across the globe has been Manufacturing-led whereas the Service sector has been resilient during the same period.The July PMI print from IHS Markit shows t
40、he same pattern.Barring the US,which is stable,most of the manufacturing PMIs are contracting.We think Service is now a much larger contributor to the health of the economy than in the past.As long as Service holds up,the overall economy should continue to hold up.The threat of a recession would be
41、much more of a concern if the weakness spills over to the Service sector,in our view.Source:HSBC calculations,Refinitiv Datastream Latest July PMI print shows Manufacturing continuing to see contraction whereas Service is healthy Source:IHS Markit 0%20%40%60%80%100%USUKFranceGermany19511981199120012
42、011Current50.046.543.248.049.749.952.253.355.451.452.252.030.035.040.045.050.055.060.0USEurozoneGermanyUKFranceChinaManufacturing PMIService PMI 8 Equities Commercial Srvcs&Supplies 6 August 2019 Employment levels in Service much steadier in comparison to Manufacturing in the US(%)Employment growth
43、in Service less volatile than Manufacturing Employment levels in the manufacturing sector are much more cyclical than in Services.Both are weak currently but the gap between the two sectors looks much more pronounced in Europe than in the US.Source:BLS,HSBC calculations Employment growth trends in E
44、urope are going through a much leaner phase in the Manufacturing segment than in Service Source:Eurostat,HSBC calculations -15%-10%-5%0%5%10%15%Jul-51Jul-53Jul-55Jul-57Jul-59Jul-61Jul-63Jul-65Jul-67Jul-69Jul-71Jul-73Jul-75Jul-77Jul-79Jul-81Jul-83Jul-85Jul-87Jul-89Jul-91Jul-93Jul-95Jul-97Jul-99Jul-01
45、Jul-03Jul-05Jul-07Jul-09Jul-11Jul-13Jul-15Jul-17Jul-19Manufacturing employees in US y-o-y(%)Goods producing employees in US y-o-y(%)Service providing employees in US y-o-y(%)-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%2009Q12009Q32010Q12010Q32011Q12011Q32012Q12012Q32013Q12013Q32014Q12014Q32015Q12015Q32016Q1
46、2016Q32017Q12017Q32018Q12018Q32019Q1European Manufacturing employees y-o-y(%)European Service employees y-o-y(%)9 Equities Commercial Srvcs&Supplies 6 August 2019 Well-known wage inflation spread across sectors There is some building of wage inflation in the US,and indeed in some skill sets around t
47、he world.This suggests there is demand and raises the question of whether slowing hiring is more an issue of supply or of demand.That is not to say there has not been some recent slowing in hiring demand,but perhaps the issue is one of demand at this price.We can see that headline inflation in the U
48、S has risen to about 3%and is stronger than in recent years around the world.This suggests demand is substantial enough to lift pay rates to attract labour.In the US the highest wage inflation is for the young,those who switch jobs and those with scarcer skill sets.However,wage inflation is rising f
49、or all age groups and for those who do not switch jobs the rate of increase is getting closer to those who switch.Corporates face a cost choice:lose staff or pay up.The demographics have an effect here.The population is ageing in the developed world,and the older we are the less likely we are to swi
50、tch jobs.This means that it costs more to tempt older workers to change jobs and may come at a much later stage.The age profile of the workforce may thus be dampening headline wage growth for longer in this cycle than in previous cycles.Scarcity and wage inflation There is well-known wage inflation
