Daily Economic Update

US: Service activity unexpectedly eases and imports rise. The ISM’s gauge of service activity dropped to 52.8 in January from December’s 54 as new orders and business activity sharply slowed. Poor weather conditions and concerns related to anticipated tariffs and high prices were cited as among the reasons for the slower growth. The subindex of prices cooled from December’s near two-year high but remained overall elevated (at 60.4) while the measure of employment rose to its highest since September 2023 (to 52.3), providing further evidence of a robust jobs market. Meanwhile, the US’s total trade deficit (goods plus services) in December surged by 25% m/m to its highest since March 2022 on falling exports (-2.6%) and rising imports (+3.5%), ahead of anticipated tariffs under the Trump administration and, to an extent, a port workers’ strike in January, which was averted after a deal. For the year 2024, the trade deficit was the second highest since 1960. In 2024, EU was the US’s top merchandize trading partner, followed by Mexico, Canada and China. However, in terms of the goods trade deficit, China took the top spot, followed by the EU, Mexico and Vietnam. Trump has highlighted high trade deficits as one of the key issues he intends to redress through tariffs, the threat of which he has so far used with the US’s main trading partners to extract concessions related to flows of illegal immigrants and the drug-substance Fentanyl.    

Chart 1: US ISM services PMI (index, above 50 expansion) Source: Haver

Chart 2: Qatar annual inflation (% y/y) Source: Haver

Qatar: Inflation drops to a five-month low amid weak housing and food price growth. Headline inflation eased to 0.2% y/y in December, down from 1% in the previous month and to a five-month low. The slowdown was driven by declines in key categories including housing (-4.2% y/y), food & beverages (-2.2%), household furnishings (-1.5%), and health (-1%). However, these declines were offset by robust y/y gains in miscellaneous goods & services (+6.6%) and tourism-related sectors, such as recreation & culture (+2.5%) and hotels & restaurants (+2.3%). For full-year 2024, inflation averaged 1.1%, the lowest since 2020, largely due to persistent weakness in housing price growth, though price rises in the recreation & culture segment were steep (+10.3%) on the back of increased tourism and visitor arrivals – numbers between January-November 2024 exceeded 2023’s tally. 

Japan: Yen strengthens to its highest level since mid-December on solid wage growth. Japanese workers’ total cash earnings rose by 4.8% y/y in December 2024, accelerating from 3.9% in November and supported by a 6.8% increase in special payments mainly related to wintertime bonuses. Meanwhile, the government’s measure of consumer inflation for calculating real wages, which excludes rents, climbed 4.2% y/y, up from November's 3.4% and rising at the fastest pace since January 2023. As a result, inflation-adjusted wage growth rose to a six-month high of 0.6% y/y in December, up from an upwardly revised 0.5% increase in the previous month. The yen appreciated following the release of the wages data to its highest level since mid-December (currently at around JPY152/$). Strength in the Japanese currency was linked to expectations of a further rise in real wage growth (in anticipation of higher wage increases in April 2025 negotiations) and easing inflationary pressures following the reinstatement of subsidies. A sustained rise in real wages is considered key for the Bank of Japan to hike interest rates further.

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