UBS On-Air: Paul Donovan Daily Audio 'Cooling cut expectations'

Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Wednesday the 12th of February. Yesterday's delayed US employment report for January had enough strength in the data to call expectations for Fed easing, at least somewhat.

Keeping fear of unemployment in check has always been absolutely critical to the stability of the US economy, and anything which suggests the labour market is strong enough to prevent fear of unemployment will reduce the urgency of an insurance interest rate cut. But that is still likely to take place at some point. There have been concerns about the politicisation of US data, but there's absolutely no evidence of that in these numbers.

There are legitimate concerns about the quality of the data, but these concerns arise from low survey response rates, made worse by poor weather in January, and by understaffing at the Bureau of Labour Statistics. The other ongoing concern is how concentrated the employment creation has been, healthcare tends to dominate. Native US worker employment fell quite sharply over the last couple of months, while non-native US worker employment rose notably.

This is surprising, as it had been supposed that foreign-born US workers would be reluctant to admit that fact when asked by a government survey, given the current climate in the United States. If this pattern survives the revision process, it might raise some questions about the importance of immigration in creating current US economic activity. The revisions to the 2025 data have political rather than economic resonance.

The relatively steep decline in US manufacturing employment last year covers most stubbed categories of manufacturing, including those protected by tariff barriers like furniture. The US affordability crisis got additional attention yesterday, with several Republican members of Congress siding with Democrats to oppose US importers having to pay tariffs when buying goods from Canada. This is very unlikely to mean anything in practical terms.

US President Trump would likely veto anything that lowered tariffs. Only the Supreme Court seems likely to be able to offer any alternative to this aspect of affordability at this stage. However, it is a demonstration of the political force of the affordability crisis, and it suggests that this topic is not likely to disappear over the course of this year.

UK fourth quarter preliminary GDP data was very slightly lower than the consensus expectation, although these numbers do tend to be revised higher over the course of subsequent quarters. The consumer is not the issue. Rising real incomes kept consumer spending just fine.

Investment spending was a bit weaker. There's an interesting question about what the required level of investment spending is in the UK as a service sector focused economy, where changing working practices have reduced the need for both office space and office equipment as investments. Government spending was also lower than had been anticipated and was revised lower for the last quarter too.

The picture is very vague given the likelihood of data revisions, but for now the data is suggesting an economy operating a little below trend without being particularly alarming. We have some ECB speakers on the calendar, but none of this is likely to interest financial markets terribly much. The trickle of euro area inflation numbers continues to come out with a remarkably benign outlook overall.

That's all for today. Have a good day. This material has been prepared and published by the Global Wealth Management Business of UBS Switzerland AG, regulated by FINMA in Switzerland.

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