Business sentiment retreated due to labour shortage, inflation worries

Business sentiment indices in Germany and the USA both retreated from recent highs.

Amongst the data released today, Germany’s industrial production fell by 1% in April (0.3% growth was expected). Separately, the ZEW economic sentiment index fell to 79.8 from 84.4 in May, vs expected increase to 86. ZEW’s comment attributed the decline to a high current situation assessment, which reduces the potential for further improvement.

The US Small Business Optimism Index has also declined, from 99.8 in April to 99.6 in May, contrary to forecasts for a rise to 101.2. The optimism paused as labour shortages are slowing growth.

The labour shortage in the US is also highlighted by fresh data on job openings, reaching 9.3 million (series high) by the end of April. The battle for labour is pushing up wages in normal times. But it is hard to talk about a real labour shortage when employment is 7.5M below its peak in February 2020 and 10M below trend, ex the covid slump.

The FxPro Analyst Team