The week ahead: US ADP, Balfour Beatty and Frasers Group results

1) US ADP payrolls (Nov) – 04/12 – with the US government now open again, you would expect to see the return of the non-farm payrolls report to its usual slot on the 1st Friday of the month, however due to the length of the shutdown there is now a data backlog which means the November payrolls report will now be published on the 16th December, a few days after the December Fed meeting on the 10th December.

This delay places much greater scrutiny on the latest November ADP payrolls report, however as with previous years we could well see a big skew to the upside as pre-Thanksgiving hiring generates an uplift in a way that is not entirely representative of recent slower trends in the US labour market.

That said, on current trends there has been a noticeable slowing in private sector hiring in recent months, with only a net 10k jobs added since July, after October saw 42k jobs added, while pay growth was flat at 4.5% for job stayers and 6.7% for job changers.

While a big jump in payrolls in November could be construed as a positive signal for the US labour market it might not be enough to stop the Fed from cutting rates again with another close decision expected on 10th December.

2) UK Services PMI (Nov) – 03/12 – the most recent PMI numbers have shown a sharp slowing in economic activity in the services sector, after rising to a 16-month high in August. Since those heady heights economic activity has slowed sharply sinking to a 7-month low of 50.5 in the recent flash numbers. The main reason for the slowdown has been an abundance of caution, ahead of the budget which has prompted businesses to shut up shop and suspend any future decisions until the fiscal picture becomes clearer. New work fell for the first time since July while hiring decisions were also suspended, as business as well as consumer confidence remained fragile. 

3) US ISM and Services (Nov) – 03/12 – The US government shutdown has prompted a similar slowdown in the US economy, however that doesn’t appear to have been reflected in the most recent flash PMI numbers from the US which saw services activity rise to its best level since July at 55. New orders rose at their fastest pace since the start of the year; however, employment growth saw a modest slowdown from the previous month. On a more concerning measure as far as prices are concerned input costs rose at the fastest pace since January 2023, which is likely to complicate matters further when it comes to whether inflationary pressures are on a downward path.                    

4) Balfour Beatty Q3 25 – 04/12 – as outgoing CEO Leo Quinn called time on his tenure at Balfour Beatty, he can look back with satisfaction on a job well done, turning around a basket case of a business in 2014 to a company that is in better health than it has ever been. With a share price pushing new record highs this year, and average net cash of £1bn the business bears little resemblance to the train wreck he took charge of in 2014. Back in August the UK construction giant announced it was on track to meet its profit forecasts for this year, as well as targeting further growth in 2026. H1 pre-tax profits rose by £20m to £132m with strong profits in its construction division, along with support services, which also delivered a 35% profit uplift, helped by a 6.9% PFO margin improvement. H1 revenue came in at £5.15bn, with new orders up by £2.9bn from a year ago to £19.5bn. As we look towards the rest of the fiscal year new CEO Philip Hoare has a tough act to follow at a time when the all-round business environment has never been more challenging.  

5) Frasers Group H1 26 – 04/12 – it’s a well-documented fact that the last 12 months have been challenging for the retail sector, with the 2024 budget adding significantly to the burden carried by these low margin businesses. Having seen its share price slide in the first half of this year to 3-year lows in April, on the back of an end of 2024 profits warning, we have managed to see a slow recovery since then. In its full year results in July the company saw a 7.4% decline in retail revenue to £4.75bn, despite a modest improvement in retail gross margin of 170bps to 45.6%. The decline in retail revenue was partly driven by reductions in the store footprints of the likes of Game UK and Studi Retail. Retail profits increased by 2% to £747.3m, however due to a 25% increase in operating costs this translated into a 2.5% decline in group profits to £808.9m. Reported profits before tax saw a 24.3% decline to £379.4m from continuing operations. At the end of last year Frasers said they expected to take a £50m hit as a result of the recent changes to NI and minimum wage levels, and this appears to have shown up in the numbers released in the summer. Be that as it may there is a sense of a business that doesn’t have a clear focus, given the various talk around further acquisitions distracting from the primary business areas like Sports Direct. In the last few months Frasers has increased its stake in Hugo Boss, while calling time on its overtures with Revolution Beauty, which is partly owned by Boohoo. Frasers is also in dispute with Boohoo which it owes a 29% stake in over its decision to rename itself Debenhams.