3 Numbers: EU Retail Spending Stronger, US Jobs, US Services
James Picerno | Mar 04, 2015 01:42AM ET
Today’s hard data on Eurozone retail sales will focus attention anew on the mounting evidence that a mild recovery is underway. Later, the US economy is under the microscope with two updates for February: the ADP Employment Report and the ISM Non-Manufacturing Index.
EU: Retail Sales (10:00 GMT) Yesterday’s retail sales report for Germany delivered a bullish signal in no uncertain terms. Inflation-adjusted spending surged 2.9% on the month and 5.3% against the year-earlier level. It’s been clear for weeks that positive momentum has returned to Europe’s biggest economy, with the latest consumption figures adding to a growing list of upbeat numbers. The question is whether the revival in Germany’s macro trend carries implications for the Eurozone economy.
In search of answers, the crowd will focus on today’s retail sales data for the euro area. Recent data leaves room for optimism. In particular, the year-on-year change in real spending advanced 2.8% through December, according to Eurostat – the best pace since 2007.
Skeptics say that the year-end bounce was due to a one-time boost from Christmas spending. Sharply lower energy prices are also cited as providing a substantial if temporary lift.
It’ll be interesting to see how today’s January report compares. We already know that Germany’s numbers are strong, but let's recognise that France is enjoying a faster rate of spending too. Real retail sales increased by 4.4% for Europe’s second-largest economy in annual terms – sharply higher against the 2.2% yearly gain in the previous month, according to Eurostat. Although January numbers for Italy and Spain haven’t been published yet, the December reports for those economies looked encouraging as well.
One reason for wondering if the recent improvement is sustainable: renewed weakness in business survey data for Europe's retail industry. The Markit Eurozone Retail Purchasing Managers Index (PMI) slipped in January to 46.6, which is well below the neutral 50.0 mark.
Is that noise or a hint that any revival in Eurozone retail spending is temporary? The answer’s unclear at the moment, although today’s monthly update on the hard data may provide some perspective for sorting out the signal from the noise.
Economic reports have turned wobbly lately … again. Consumer spending slumped in January as did construction spending, for instance, while the numbers on housing remain mixed. Are these the telltale signs that the much-heralded acceleration in the US economy of late is once again succumbing to the dreaded slow-growth bias that’s prevailed in recent years? One reason for thinking positively is the recent increase in job growth. But here too there are signs that the rate of expansion may be cooling.
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Granted, private employment growth in the three months through January looks impressive. But the comparisons in the last two months imply that the pace is slipping. Will today’s February release from ADP provide yet another warning?
Perhaps not. Private payrolls are expected to see a 220,000 rise for February, according to Econoday.com’s consensus forecast. That’s a bit better than January’s 213,000 advance. If the prediction holds, this data set will post its first acceleration in growth relative to the previous number since last November.
That’s enough to keep an optimistic outlook bubbling for the labour market and, by extension, the economy generally. A downside surprise at this juncture, however, will trigger a new round of uncomfortable questions about the durability of the recent improvement in the macro trend.
The services sector seems to be settling in to a solid rate of growth, according to ISM’s data. The group’s non-manufacturing benchmark has consistently delivered readings in the 56-to-59 range since last May, which is to say well above the neutral 50.0 mark. The competing purchasing managers' index (PMI) from Markit has shown more volatility lately, but the flash estimate for February rebounded sharply to 57.0, the best level since last October.
The latest jump in the PMI is a strong signal for anticipating that today’s February report from ISM will continue to deliver upbeat news for the services sector. Not surprisingly, economists agree. Briefing.com’s consensus forecast sees today’s ISM number for February dipping to 56.5 vs. 56.7 in the previous month, but that’s still in the range we’ve seen in recent months.
Keep in mind that revised PMI data for February is also scheduled for release today at 14:45 GMT, which is just ahead of the ISM figures. Here, too, economists are anticipating another upbeat number, albeit one that’s incrementally below the flash estimate.
Bottom line: short of a major downside surprise in today’s ISM and PMI updates, the services sector remains on track to continue growing at a healthy pace.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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