3 Numbers: Fears UK Recovery Has Peaked, U.S. Durable Goods, Services
James Picerno | May 26, 2015 01:23AM ET
The economic numbers start rolling in again after a lull due to a long holiday weekend in the UK and US. One of today’s key releases is the CBI Distributive Trades Survey for Britain, which will provide an early estimate of retail spending for May. Later, the US economy is in focus with two reports: Durable goods orders for April and the preliminary numbers for the services sector via Markit’s purchasing managers’ index.
said earlier this month.
NIESR’s optimistic outlook will be tested today with one of the first data points for May. The CBI Distributive Trades data - viewed as a leading indicator for retail spending - won’t resolve the debate, but it will provide a preliminary estimate for deciding how the economy is faring midway through the second quarter.
The numbers of late look a bit soft, with April’s dip to 12 reflecting a slowdown in growth relative to the strong gains in previous months. But some analysts say today’s update will deliver a modest improvement. If that forecast proves to be wrong, and the index slumps further, the view that the economy’s recent weakness is temporary will take a new hit.
said that the economy will strengthen after a rocky start in 2015. "If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target.”
Maybe so, but an upbeat outlook will remain challenged if durable goods orders slump in April. If accurate, the mild 0.6% dip that's expected will translate into a fractional year-on-year decline, which would be the first case of red ink for the annual comparison since last November.
noted Chris Williamson, Markit’s chief economist. “However, unless production growth revives there is a worry that payroll growth will slow as companies seek to boost productivity.”
One reason for considering the possibility that manufacturing’s deceleration isn’t a danger sign for the business cycle is the considerably stronger trend in the services sector, which represents a much larger slice of economic activity.
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Indeed, growth accelerated to a 10-month high last month, according to the Services PMI. Using this index as a gauge, the macro trend shows minimal signs of stalling, much less contracting. Notably, employment growth remains “resilient”, according to Williamson.
A similar message emerged in the April survey numbers for services via the Institute for Supply Management - the group’s Non-Manufacturing Index remained close to an eight-month high last month.
Today’s PMI release is expected to dip slightly, to 56.5 for the flash estimate for May against 57.4 in the previous month, based on Econoday.com’s consensus prediction. But that still equates with a healthy expansion, albeit one that’s a touch slower than we’ve seen in recent months.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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