Our weekly podcast by Kevin Lings:

Latest US manufacturing, jobs data tell different stories

In this podcast, STANLIB’s Chief Economist, Kevin Lings, analyses latest US ISM manufacturing and labour data. The manufacturing index increased significantlyto above 50, normally indicating expansion in the sector, but Kevin believes thisreflects shorter-term factors, including anticipation of greater consumerspending ahead of tax cuts. US labour data continues to soften as businesses maybe holding back on creating new jobs due to policy uncertainty and AI adoption.

The focus areas during the week included:

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• The S&P 500 indexrose by a robust 2% on Friday but still ended the week down 0.1%. Since thestart of 2026 the S&P 500 is up 1.3%, although as recently as 2 February itwas up 1.9%. This is despite the earnings for most S&P companies (that havealready reported for Q4 2025) exceeding market estimates. Cryptocurrencies havealso been trading sharply lower. Bitcoin ended the week at around $70 000,which is about 40% off its all-time high just four months ago.
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• Japan’sstock markets rose convincingly over the week, with the Nikkei 225 Index gaining 1.8% and the broader TOPIX Index up an impressive 3.7%. Domestic sentiment strengthened ahead of the country’s Lower House election on 8 February.
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• SA’s All-Share Index ended relatively unchanged, although the market is down a substantial 4.2% from its close on 29 January 2026, hurt by the recent fall-off in precious metal prices. Year-to-date the All-Share Index is up 3.6% in rands but up 7% in dollars.
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• Emergingmarket currencies and the rand lost a modest 0.1%against the US dollar last week. Although the rand has (very recently) lostsome of its peer group advantage due to the decline in precious metals prices,it is still outperforming the emerging market currency index on a year-to-datebasis. It has gained 3.3% against the dollar compared to the emerging marketcurrency index, which is up by only 1%.
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• The US ISM manufacturing index surged to 52.6 in January 2026 from 47.9 inDecember and well above market expectations for an increase to 48.5. This isthe highest ISM manufacturing index level since 2022 and the first readingabove the key 50 index level in a year. All five subindexes improved in themonth. The new orders index rebounded for its first month of expansion sinceAugust 2025 and its highest reading in almost four years, a potential sign of ademand-related spike in US factory activity. A possible explanation for therecent sharp increase in the ISM manufacturing index is President DonaldTrump’s threat to impose higher tariffs on the Eurozone (related to Greenland),a run-down of inventories in the preceding months and the anticipation of asurge in consumer activity because of the impending tax rebates.
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• InJanuary 2026, the US ISM Services Index was unchanged at 53.8, which wasslightly above market expectations, indicating an ongoing expansion in theservices sector. In fact, January 2026 is its 19th consecutive month ofexpansion and the second consecutive month that all subindexes of the servicesPMI were in expansionary territory. For example, the forward-looking new orderscomponent of the index was a relatively healthy 53.1, although this wasslightly below the consensus forecast of 55. An ongoing expansion in theservices sector, combined with some improvement in the manufacturing sector,suggests that the US economy remains on track to grow by between 2% and 2.5% in2026. ‍
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• USjob openings declined to 6.542 million in December from a revised 6.926 million in November and well below market expectations for a reading of 7.250 million. This is the lowest level of US job openings since September 2020, highlighting that US private sector demand for labour has softened. The decline in jobopenings was led by professional and business services, suggesting AI-driven hiring restraint. The jobs-workers gap, which measures the differencebetween labour supply and labour demand, is now firmly below zero. While the US labour market has reached the flatter side of the Beveridge curve, suggestingthat a further decline in job openings is likely to lead to a risingunemployment rate, US population growth has slowed considerably in recentmonths due to less immigration. The fact that both “lay-offs” and “quits” werestable reinforces the “no hire, no fire” current US labour market dynamic. ‍
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• USprivate sector payrolls processing company ADP reported that private sectoremployment increased by only 22 000 jobs in January 2026. This was below marketexpectations for an increase of around 45 000 and down from 37 000 in December.According to ADP, US private sector job creation totalled only 398 000 in 2025,which is well down from their estimate of 771 000 jobs created in 2024. ‍
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• USconsulting firm Challenger, Gray & Christmas reported that US-based employers announced over 108 000 job cuts in January. This is an increase of118% y/y and a rise of 205% from the prior month. January’s announced lay-offs were the most for the month since 2009. This is another indicator that the US labour market has softened.‍
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• US weekly jobless claims rose to 231 000 in the past week, which was above market expectations for the number to remain at around 210 000. Weekly jobless claims have averaged about 211 000 so far this year, which is still below last year's average of 226 000. Severe winter storms, which affected a large part of the country in late January 2026, disrupted business activity and may have boosted jobless claims. Continuing claims, which measure the total number of people receiving benefits, increased to 1.84 million, in line with forecasts. ‍
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• Apartial US government shutdown took effect on 1 February 2026 as funding bills for six federal agencies were not signed into law. This occurred despite the Senatepassing a bipartisan bill on Friday (31 January) to fund five of the sixagencies for the full year. It also extended funding for the Department of Homeland Security (DHS) for two weeks to allow for further negotiations. During the week, the bill was approval by the House of Representatives and the President, which ended the shutdown, although the longer-term funding of the DHS still needs to be resolved. While the shutdown created a temporary disruption in the affected agencies (including a delay to some of the US employment data) the impact on the US economy is negligible.‍
  
• The European Central Bank (ECB) left its key deposit rate unchanged at 2% for a fifth consecutive meeting, as expected. The ECB’s policy statement said that the economy “remains resilient in a challenging global environment” and that inflation “should stabilise” at its 2% target in the medium term. ECB President Christine Lagarde said at the press conference: “We are in a broadly balanced situation at the moment” and that policy remained in a “good place”. ‍
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• Eurozone consumer inflation slowed further in January 2026 to 1.7% y/y from 1.9% y/y in December. CPI declined by 0.5% m/m. The lower inflation outcome was helped by lower energy prices and the stronger euro. The core inflation rate eased to 2.2% y/y in January, the lowest level since October 2021, while services inflation declined to 3.2% from 3.4%. ‍
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• Thevolume of retail sales in the Eurozone declined by 0.5% m/m in December 2025,which was below market expectations for a decline of 0.2% m/m. In the final quarter of 2025, retail sales volumes rose by a meaningful 1.4% q/q, suggesting that household spending improved towards the end of 2025, despite the weaker-than-expected December reading.‍
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• The Bank of England (BoE) voted to keep its policy rate on hold at 3.75%, having cut rates by 25 bps in December 2025. Interestingly, four of nine Monetary Policy Committee members voted in favour of cutting interest rates further, prompting some financial market participants to raise their expectation of a cut in March 2026. Governor Andrew Bailey said after the decision that “there should be scope for some further easing” because the BoE now expected inflation to settle close to the2% target in April. He noted that the market interest rate curve implied two cuts in interest rates this year, which was “reasonable”. ‍
  
• Japan’s household spending fell by 2.6% y/y in December 2025, which is down sharply from the November increase of 2.9%. Economists expected a modest decline. Households have been cutting back on spending as inflationary pressures are eroding their purchasing power. Inflation is among the key issues for voters in the 8February election, as Prime Minister Sanae Takaichi recently pledged to reduce the consumption tax on food to 0% for two years in an effort to lower living costs. At this stage the exit polling suggests that Takaichi’s Liberal Democratic Party should win an overwhelming victory. ‍
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• The Reserve Bank of Australia (RBA) increased its key interest rate by 25 bps to3.85%. This is its first increase since November 2023, making it the first major central bank to hike interest rates in the current global interest rate cycle. The increase, which was in line with market expectations, reflects the bank’s concerns about persistent inflation. The decision was unanimous. In making the decision, the RBA warned that “inflation is likely to remain above target for some time”.
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