The Week Ahead: U.S. Labor Data, European Production

After the Federal Reserve releases its labor market conditions index today at 10am EST, a number of key economic indicators will be released that will measure economic developments in the United States and in Europe.

European lawmakers have recently disagreed on how the European Central Bank should move forward, in light of disinflationary trends that have caused both negative bond yields and deflation throughout central and northern Europe.

After the Federal Reserve releases its labor market conditions index today at 10am EST, a number of key economic indicators will be released that will measure economic developments in the United States and in Europe.

European lawmakers have recently disagreed on how the European Central Bank should move forward, in light of disinflationary trends that have caused both negative bond yields and deflation throughout central and northern Europe.

That backdrop has clouded discussions between Greek and German policymakers over how Greece’s enormous sovereign debt load is manageable. Greek finance minister Yanis Varoufakis has suggested that the ECB and Germany agree to restructure Greece’s public debt, which rose to 175% of GDP in 2013, so that future debt payments tie to GDP growth.

According to this plan, repaying the debts could not become so onerous that it forced Greece into an economic contraction, as has been the case since 2009.

Last week, the ECB responded to this by announcing that it would no longer accept Greek government securities as collateral in the ECB’s open market actions, which will cause a liquidity crunch in Greece. The decision is set to begin on February 11.

Many economists and pundits have argued over whether a Greek exit from the Eurozone is inevitable. Alan Greenspan said in an interview that Greece “will eventually leave” the Eurozone, adding that its status as a Eurozone member does not help “them or the rest of the Eurozone.” On Sunday, Varoufakis argued that the euro could not survive a Grexit. “The euro is fragile, it’s like building a castle of cards, if you take out the Greek card the others will collapse,” he said.

The continued drama over Greece’s sovereign debt will remain a focal point, but manufacturing data due this week from the various Eurozone nations and the UK will likely be further ammunition in the debate.

U.S. Labor Data Faces Scrutiny

Meanwhile, in the United States, a Federal Reserve release Monday morning is likely to face intense scrutiny as it points to the controversial decoupling of employment rates and data observed since the middle of 2014. While unemployment continues to fall, wages have not risen, although historically the two closely correlate. Some economists argue that the labor data is distorted and cannot be compared to history, thanks to the demographics of the country, which are seeing more and more baby boomers retire, thus causing labor participation to lessen.

On Tuesday, the National Federation of Independent Business will release its Small Business Optimism Index, while the Bureau of Labor Statistics will release data on job openings and labor turnover on Wednesday at 10a.m. Expectations are for 4.97 million job openings in November, an increase from October.

Thursday will see the release of data on weekly unemployment claims, expected to rise to 285,000 from 278,000 the prior week, and the release of retail sales simultaneously. On Friday will be the release of the important Consumer Sentiment Index report at 10am EST, which expects to see an even stronger U.S. consumer, which in turn should lift retail prices and maybe the inflation rate.