3 Numbers: EU Growth At A Snail's Pace; U.S. Small Business, Jobs
James Picerno | Sep 08, 2015 01:26AM ET
- Eurozone GDP growth should remain at 0.3% in today’s revised estimate for Q2
- There should be a welcome uptick in small business sentiment in the US
- The US labour market conditions isn't likely to support the case for a rate hike
The lineup of economic releases picks up today after a quiet Monday. The Eurozone macro trend is back in focus with a revision for GDP in the second quarter. Later, a couple of US updates will set the tone for macro expectations this week, starting with the monthly data on small business sentiment for August. We’ll also see the Federal Reserve ’s monthly estimate of the Labor Market Conditions Index for August.
Eurozone: Q2 GDP (0900 GMT): Today’s second estimate of Eurozone GDP for the second quarter is expected to match the preliminary data and stick to a 0.3% rise. That’s still a sluggish advance, but matching the initial estimate would be slightly encouraging in the wake of modestly slower growth estimates for Europe.
The European Central Bank last week advised that “the recovery in activity in the euro area is expected to continue, albeit at a somewhat weaker pace than earlier expected, and this is reflected in some downward revisions to the growth outlook.”
Does that mean that today’s outlook for a 0.3% rise in Q2 GDP is vulnerable to a downgrade? No, according to Econoday.com’s consensus forecast, which sees Q2 GDP remaining at 0.3% in today’s report from Eurostat, the statistical agency for Europe.
There’s also no sign that the recovery is about to lose altitude via last week’s update of the Eurozone Composite Purchasing Managers’ Index (PMI)—a broad measure of activity in the services and manufacturing sectors. Markit Economics reported a “solid increase in employment as output growth exceeds four-year high” for the August PMI release.
That’s a sign for expecting GDP growth that’s nearly 0.4% for Q3. As such, a surprisingly weak number for today’s Q2 GDP growth rate would probably rebound once the official Q3 data is published later in the year.
US: Small Business Optimism Index (1000 GMT): The labour market overall grew less than expected in August, which kept a lid on job growth for small companies too. Firms with less than 50 employees added a relatively soft 85,000 positions last month, according to the ADP Employment Report. Although that’s up from July’s disappointing rise of 63,000, the August gain for small companies otherwise ranks as the weakest rise in more than a year.
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Small firms have historically been the main engine of US job growth and so this slice of the employment data is critical for monitoring the economic outlook generally. Today’s sentiment update from the National Federation of Independent Business (NFIB) will shed new light on whether the recent slowdown in small-firm job growth will continue.
The group’s sentiment index has slipped lately, although there’s was a modest bounce in July, albeit only back to the low range for the past year or so. The good news is that the crowd’s looking for another uptick to 96.0 for the August reading, which would mark a three-month high. Not great, although the news—assuming the prediction holds—will be read as a sign that small-company job growth will stabilize if not pick up a bit in the months to come.
US: Labour Market Conditions Index (1400 GMT): This benchmark from the Federal Reserve offers a useful big-picture measure of the labour market’s general trend. Based on recent updates, it’s clear that forward momentum has decelerated sharply relative to last year’s pace. Unfortunately, the sluggish trend is expected to hold in today’s August update of the Labour Market Conditions Index (LMCI), a factor model based on 19 indicators.
Econoday.com’s consensus forecast see LMCI ticking up to 1.3 for August, slightly above the previous month’s 1.1 reading. A slight improvement would certainly be welcome after the recent slide in the stock market, which has raised questions about the US economy. But even if LMCI rises to 1.3, that's still well below the 6.0-plus range that prevailed in last year’s fourth quarter.
In short, today’s LMCI report isn't expected to give the Fed much support to start hiking rates at next week’s policy meeting. The labour market is still growing, but the momentum is on track to remain relatively weak in August. Nonfarm payrolls rose by just 173,000 last month in seasonally adjusted terms, according to the government’s data—the smallest gain in five months. That's not a horrible number, but it’s hardly a sign of a robust expansion.
Considering what we learned in last week's August report on payrolls, it would surprising if today’s LMCI figures paint a substantially brighter outlook.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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