3 Numbers: U.S. Factory Orders On Track To Slide
James Picerno | Apr 04, 2016 01:36AM ET
- Eurozone investor sentiment may be due for a rebound in today’s Sentix update
- Core inflation in the Eurozone is on the rise, easing worries about deflation
- US factory orders are likely to fall in today’s report for February
- The March gain in US payrolls will find support in the Fed's labour index update
- The year-on-year trend in total nonfarm payrolls paints an upbeat US jobs profile
An early clue on the outlook for April data for the Eurozone arrives in today’s monthly update of the investor sentiment via Sentix. Later, two US releases will receive close attention in the wake of last week’s upbeat numbers on payrolls. First up is the February profile for factory orders, followed by the Federal Reserve’s multi-factor measure of the labour market.
Eurozone: Sentix Investor Sentiment (0830 GMT): Headline inflation in annual terms continued to contract for a second month in a row in March, according to last week’s update. But while the sight of another round of mild deflation looks troubling (Eurozone consumer prices slumped 0.1% last month vs. the year earlier level), the modestly higher increase in core inflation sends a brighter message.
Indeed, the latest round of headline weakness in the consumer price index is primarily due to a familiar gremlin: energy. Eurostat noted that energy’s drag on prices accelerated in March. Ignoring this distorting factor shows core inflation rising 1.0% year over year, a bit more than February’s 0.8% increase.
Nonetheless, the macro headwinds appear to be strengthening, according to last week’s deceleration in the monthly GDP estimate for the Eurozone. The Bank of Italy’s Euro-Coin Indicator dipped to a 0.34% quarterly rate in March – well below February’s 0.47% reading. The update leaves the current estimate for this GDP proxy at its slowest pace since last April.
That still leaves room for the official Q1 GDP report to hold at the modest 0.3% rate for the third consecutive quarter when the numbers are published in early May. Is that assessment still too rosy? Today’s investor sentiment update may offer some guidance
Sentix survey data for analysts and investors seems to have anticipated the downgrade in the Euro-Coin Indicator’s latest GDP estimate. Since January, the Sentix index has been sliding, slumping to just 5.5 in last month’s release – the lowest in more than a year. Another round of softer data will heighten concerns that the Eurozone’s Q1 GDP growth rate may suffer deceleration after all, when the official update arrives next month.
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US: Factory Orders (1400 GMT): Everyone’s looking for signs that the manufacturing slump is over. There have been several encouraging clues in recent months, but all of them have been head fakes … so far. Perhaps today’s update will offer a new (and genuine?) hint that the sector is finally on the mend.
Last month’s report certainly opens the door for thinking positively. Factory orders advanced 1.6% in January – the first monthly gain in three months and the strongest increase since last June. It could be noise, of course, as implied by the still-negative year-over-year trend. In other words, there’s still a long road ahead before we’ll see a compelling run of data pointing to a recovery proper for manufacturing via the hard numbers.
But there may be light at the end of the tunnel, according to last week’s March reading of the ISM Manufacturing Index. This sentiment benchmark increased above the neutral 50.0 mark last month for the first time since last August. Is that a sign that the worst has passed?
Perhaps, but the crowd remains sceptical as it relates to today’s data. Econoday.com’s consensus forecast sees orders slumping 1.6% in February. If so, the year-over-year trend will dig a bit deeper into negative territory.
US: Labour Market Conditions Index (1400 GMT) : Friday’s update on payrolls for March revealed another solid gain. The US economy added 215,000 positions, the Labor Department advised. Although the increase is a middling one relative to the past 12 months, it’s strong enough to boost expectations that moderate economic growth is sustainable for the near term.
The year-over-year trend in total nonfarm payrolls in particular paints an upbeat profile. Jobs increased nearly 2.3% last month vs. the year-earlier level – the best pace since last November. That’s a solid rate that suggests that recession risk remains low.
“We’ve been through some rough patches, but we continue to generate a lot of jobs,” noted the chief financial economist at Jefferies LLC. "In a consumer-driven economy, that’s going to keep us headed in the right direction."
The employment trend will look even stronger if the Fed’s Labor Market Conditions Index shows some firming in today’s update for March. This multi-factor benchmark has been quite soft so far this year, dipping to a negative 2.4 reading in February. The surprisingly weak reading in the last release raised questions about the path for the US labour market.
But after Friday’s update on payrolls for March, the LMCI’s poised for a rebound. In that case, confidence will strengthen for expecting that job growth will roll on.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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