3 Numbers: Hope Trumps Expectations For U.S. Industrial Rebound
James Picerno | Nov 17, 2015 05:30AM ET
The pace of economic releases picks up today, including this month’s survey data on economic conditions in Germany from the Centre for European Economic Research (ZEW). Later, we’ll see the September figures on US industrial production, followed by the November survey report for US home builders.
Germany: ZEW Economic Survey (1000 GMT): The optimistic spin on last week’s news that third quarter Eurozone GDP growth slowed to 0.3% is that the weakness has little to do with the largest economies. Natixis explained yesterday that “the [GDP] slowdown in the Eurozone as a whole is due to the Netherlands (0.1% versus 0.4% expected) and some smaller member countries, in particular Finland (-0.6%) and Portugal (0% versus 0.4% expected)”.
The bank is projecting that the slightly slower 0.3% growth for the Eurozone will continue in Q4, but the risk going forward should be seen in proper perspective, Natixis emphasized. Roughly 8% of the Eurozone's GDP relies on emerging markets, but that compares with 20% that’s linked to the developed economies. “In other words, a 2% decline in demand for final goods from emerging economies is more than offset by a 1% increase in this same demand from developed economies.”
Overall, Natixis reasoned that the wobbly growth in emerging markets will at worst keep the Eurozone recovery from gathering speed rather than derailing it.
That forecast will be tested to a degree in today’s sentiment data for Germany. Recent ZEW numbers paint a deteriorating trend, particularly for the expectations component, which has been sliding since April. The current situation benchmark has been firmer, although this slice of the figures took a clear turn downward in the October update.
Economists, however, are looking for stability overall in today’s November release. Econoday.com’s consensus forecast sees the expectations index rising to 6.0, which would be the first increase since March. Meanwhile, the current situation benchmark is on track to edge lower, but only slightly, to 53.2.
If the predictions hold, the Natixis narrative that Europe’s recovery will survive but not necessarily accelerate in Q4 will find support in today’s ZEW release.
US: Industrial Production (1415 GMT): Yesterday’s disappointing November report on manufacturing activity in the New York Fed’s region suggests that the weak trend in this sector has yet to run its course. Although the national data from Markit Economics via its purchasing managers’ index (PMI) suggests otherwise, there’s enough gloom elsewhere in manufacturing to rationalise a cautious stance. The ISM Manufacturing Index in the last two months, for instance, has slowed to a crawl.
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Nonetheless, analysts are looking for a slight rebound in today’s hard data report on industrial production for October. Briefing.com’s consensus forecast reflects a 0.1% gain in output. That’s a weak rise, but if it turns out to be accurate it’ll mark the first monthly increase in three months.
Even so, a 0.1% advance, given recent history, is hardly a convincing sign of revival, but it’ll at least provide some cover for arguing that the national trend looks brighter than yesterday’s New York Fed data imply.
US: Housing Market Index (1500 GMT): Home builder sentiment has gone from strength to strength lately. The industry’s improving outlook is a bit surprising, given that the potential for higher interest rates is back on the agenda for the near-term future at the Federal Reserve’s policy meeting next month. Nonetheless, the National Association of Home Builders Housing Market Index jumped to a ten-year high last month.
The index's latest rise to a 64 reading in October marks a return to heights last seen at the tail end of the previous housing boom. “The fact that builder confidence has held in the 60s since June is proof that the single-family housing market is making lasting gains as more serious buyers come forward,” the NAHB chairman said last month.
Today’s update for November is expected to hold steady at 64, according to Econoday.com’s consensus forecast. If so, the news will offer bullish support for expecting that tomorrow’s hard numbers on residential housing construction may edge higher and touch a new post-recession peak.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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