3 Numbers: German Sentiment Backtracks, U.S. Mortgages, Sales
James Picerno | May 27, 2015 01:30AM ET
The softer pace of economic growth in Germany and the implications for the future are in focus today with the monthly update of the Gfk Consumer Climate Index. Later, the US economy moves to the fore again with a pair of weekly releases: mortgage applications and the Redbook Sales Index, which tracks spending in retail stores.
Germany: Gfk Consumer Climate Index (06:00 GMT) Grexit risk is bubbling again, but the Eurozone’s recovery rolls forward, according to the latest second-quarter GDP estimate from Now-casting.com. Q2 growth is on track to rise a bit more than 0.5% on a quarter-over-quarter basis, a mildly stronger forecast than we’ve seen in recent weeks and above Q1’s 0.4% gain.
Germany’s macro trend has softened lately, but it’s premature to see this as anything more than short-term noise. There's always the potential for negative surprises, of course, due to Greece. But leaving that threat aside, the latest round of survey numbers paint an upbeat but somewhat mixed picture of the trend for Germany. As a result, it’s still reasonable to wonder if Europe’s biggest economy’s near-term growth will be anything more than modest.
Markit’s preliminary estimate of its composite purchasing managers’ index for Germany in May dipped to a five-month low, although it remains moderately above the neutral 50 mark at 52.8. Hardly spectacular, but strong enough to minimise fears for the near term.
True, Q1 GDP growth was a bit slower than expected – 0.3% relative to last year’s Q4 – in last week’s release of first-quarter details. But here, too, the big picture still skews positive. Household spending, for instance, increased at a robust 0.6%. Trade activity softened, but recent updates of business sentiment data from other sources show minimal signs of distress.
The Ifo Business Climate Index fell slightly in May but remains close to its highest level in nearly a year. The ZEW Indicator of Economic Sentiment for Germany is somewhat weaker, although “only a small number of survey participants actually expect a deterioration of the economic situation", noted an economist at Intesa Sanpaolo in Milan, although the basic macro trend “remains solid” she told Bloomberg last week.
US: Weekly Mortgage Applications (11:00 GMT) The housing sector has been buffeted lately with mixed numbers, although yesterday’s upbeat releases on prices and sales of newly built houses suggest that there’s still a bias for growth.
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Housing prices rose a bit more than expected in March, advancing 5.0% on a year-over-year basis in unadjusted terms via the S&P Case-Shiller benchmark of property values. Meanwhile, sales of new homes bounced back in April, climbing 28% for the year through the end of the first quarter.
The latest numbers offer support for thinking positively for the housing sector, but the trend for mortgage applications still raises questions. Indeed, new applications have decreased in each of the past four weeks via numbers from the Mortgage Bankers Association (MBA). “The level of purchase applications remained 11% higher than the same week last year, but the drop this week may indicate borrowers being wary of the recent run up in mortgage rates," MBA's chief economist said last week.
The firmer data on prices and new-home sales suggest that demand for applications is due for a rebound. But if today’s update delivers another round of red ink for the weekly change, the news will dull the optimistic glow surrounding yesterday's releases.
said CB’s director of economic indicators. “After a three-month slide, the Present Situation Index increased, propelled by a more positive assessment of the labor market. Expectations, however, were relatively flat following a steep decline in April. While current conditions in the second quarter appear to be improving, consumers still remain cautious about the short-term outlook.”
From the vantage of Bloomberg’s weekly measure of expectations, on the other hand, “cautious” doesn’t quite cut it as an explanation. Indeed, the Consumer Comfort Index fell to the lowest level last week since December.
“Despite positive employment and housing reports, consumer concerns may reflect still-stagnant wages as well as sharp divisions between higher- and lower-income groups in economic views,” said the president of Langer Research Associates, which generates the data for Bloomberg. “The latest stumble makes clear that economic travails continue for many Americans.”
Meanwhile, recent numbers for the Redbook Sales Index, which tracks weekly store sales, suggest that spending continues to weaken. The monthly trend has turned down lately, although the year-over-year change is still modestly positive.
So, which is it? Is the mood on Main Street perking up? If so, is that an early clue that we’ll see better numbers for retail spending in the months ahead? The outlook’s still cloudy, but today’s Redbook data may help clear away some of the statistical fog.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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