3 Numbers: Chicago Data To Show Low Risk Of U.S. Recession
James Picerno | Apr 24, 2017 01:48AM ET
- Germany’s Ifo Business Climate Index to hold near six-year high in April
- A mild pullback projected for the April update for UK CBI Industrial Trends Survey
- Chicago Fed National Activity Index may show US economy decelerated in March
The markets will focus on Marine Le Pen’s second place win in France’s presidential election, which advances her to next month’s runoff against the independent centrist Emmanuel Macron, who placed first. Le Pen has called for France to pull out of the European Union, which suggests that the currency union’s fate could be determined by the election results in the second round that’s scheduled for May 7.
Meanwhile, the key scheduled releases for data on Monday include April business sentiment in Germany via Ifo. Another April profile on tap today is the mood in the UK, based on CBI’s survey numbers that track industrial trends. Later, the Chicago Fed publishes the March reading of its US business cycle tracker.
Germany: Ifo Business Climate Index (0800 GMT): Economic growth is expected to show improvement in the upcoming first-quarter GDP data, the Finance Ministry advised last week. “The German economy continues to be on the up,” the government noted in its monthly report that was published on Friday.
Survey data published previously also suggests that firmer economic momentum in Q1 has carried over into the first month of Q2.
“The German economy registered a strong start to the second quarter of 2017, according to the April flash PMI,” an economist at IHS Markit noted last week. “At 56.3, the Composite Output Index lost a little ground from March’s 57.1 but is nonetheless above the Q1 average of 56.0, which itself was the highest of any quarter since Q2 2011.”
Today’s April release of Ifo’s business sentiment indices is expected to fall in line with the upbeat narrative. TradingEconomics.com’s consensus forecast sees today’s opening bid on Q2 numbers more or less holding steady and near the highest readings in nearly six years.
Germany’s stock market seems to agree with the upbeat outlook. Although the DAX Index has dipped modestly in recent weeks, the benchmark remains close to a one-year high.
There are still plenty of risks lurking. But based on the economic data in hand, moderate growth remains the prevailing outlook for the Eurozone’s main economy.
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UK: CBI Industrial Trends Survey (1000 GMT): Is Brexit blowback finally taking a toll on Britain’s economy? That’s one interpretation of last week’s news that first quarter retail sales in the UK suffered the biggest drop in seven years.
Economists said that the slide in spending was linked with the dramatic slide in sterling, which is driving prices higher. Since the UK voted to leave the European Union last June, sterling has fallen 14% against the US dollar , for example.
The combination of higher inflation and softer spending is a warning flag, according to some analysts. “These figures suggest that the clouds are now gathering over British consumers,” said the managing director of retail at Lloyds Bank Commercial Banking.
Today’s industrial survey data for April will be widely read for deciding if the weakness is spreading. The crowd’s expecting that CBI’s Industrial Trends Orders Book Balance Index will dip for the first time in six months, falling to 5 for this month’s reading, according to TradingEconomics.com’s consensus forecast.
That still leaves the index at a relatively elevated level in relation to recent history – a reading above zero indicates that manufacturing executives anticipate that order volume is on track to increase in the near term.
Note that the previously released UK Manufacturing PMI for March certainly paints an upbeat outlook for the sector. Although this benchmark edged down to a four-month low of 54.2, it’s still comfortably above the neutral 50 mark.
Nonetheless, the growth rate of manufacturing output has been decelerating this year, which suggests that Britain’s macro trend is downshifting. “It’s clear that the expansion will be less than the buoyant 1.3% rise seen in the fourth quarter of last year,” said an IHS Markit economist recently.
Meanwhile, in the wake of the soft retail data released on Friday, any downturn in today’s CBI report will heighten concern that the post-Brexit economic bounce may be facing new headwinds in Q2.
Such news comes at a politically sensitive juncture for British Prime Minister Theresa May, who last week called for a general election in June in a bid to strengthen her hand in Brexit negotiations with the EU.
“Our opponents believe because the government's majority is so small that our resolve will weaken and that they can force us to change course,” the Prime Minister said last week. The question is whether softer economic data will do the work of the political opposition?
US: Chicago Fed National Activity Index (1230 GMT): US economic growth is expected to decelerate to a sluggish 1.4% increase in Friday’s initial GDP report for the first quarter, according to the latest survey data viaThe Wall Street Journal.
Some nowcasting models are looking for an even softer trend, prompting the question: Is the US on the verge on a new contraction?
No, at least not according to expectations for today’s update of the Chicago Fed’s business cycle index for March. The implied three-month average of the National Activity Index is on track to dip slightly to 0.18 for the final month of Q1, based on TradingEconomics.com’s econometric forecast for the one-month value.
But that translates into the second highest level in two years. Any reading above zero indicates above-trend growth rate relative to the historical record.
The vintage data for this benchmark is impressive for real-time analysis and so a relatively upbeat reading should provide a degree of comfort for expecting that output will continue to rise for the near-term. In fact, that’s the message in my analysis of a broad mix of indicators through March.
But steering clear of recession doesn’t guarantee that growth will be robust. Economists overall think that the economy suffered another weak start to the year, a familiar pattern in recent history. It’s also true that the economy has bounced back from those soft patches.
It’s too soon to say with any confidence that a repeat performance is fated for 2017. Yet encouraging news in today’s update from the Chicago Fed would boost the odds that the eight-year-old expansion will prevail for the foreseeable future.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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