3 Numbers: Will Annual Growth In U.S. Payrolls Slip Below 2%?
James Picerno | Feb 03, 2016 03:40AM ET
Wednesday is a busy day for key economic releases, including the hard-data update on eurozone retail spending in December. Later, two US reports will shed light on the macro trend in January, starting with ADP’s estimate of private payrolls. Later, we'll see new numbers for the ISM Non-Manufacturing Index in this year’s opening month.
A little growth in store ... the crowd’s looking for a 0.3% retail sales increase in the eurozone.
Eurozone: Retail Sales (1000 GMT) Yesterday’s report on unemployment in December offered a mild dose of optimism for expecting the eurozone’s modest recovery to survive the current bout of global volatility. The jobless rate across the countries that share the euro ticked lower to 10.4% — slightly below expectations.
That rate is still elevated and no one's idea of a healthy number, but the fact that it's still sliding is good news. Meanwhile, the number of unemployed also dipped at the close of 2015, reflecting a modest but steady decrease on this front too.
Today’s update on retail sales will provide more context for deciding if macro improvement is still on the agenda for the near-term outlook. Consumer spending has been under pressure in the euro area lately, but today’s release for December is expected to deliver some relief.
The crowd’s looking for a 0.3% increase in the final month of last year compared with November, based on Econoday.com’s consensus forecast. The gain will certainly be welcome after the previous run of three straight monthly declines.
Unfortunately, the deceleration in the year-over-year comparison for retail spending looks worrisome. Weakness in the consumer sector is also showing up in Markit’s purchasing managers’ index for the sector. In the November and December updates the PMI posted below-50 readings, which indicates contraction. The weak figures imply that today’s hard data may end up disappointing the market.
“The recovery in the Eurozone retail sector has faded in the final months of the year, reflecting softer trends in both Germany and France,” a Markit economist noted last month.
A disappointing update in today’s retail profile will take some of the shine off of yesterday’s upbeat news on unemployment. But looking through the spending data to the broad trend still suggests that growth will endure. Now-casting.com’s latest first-quarter GDP estimate for the currency bloc is 0.45% (quarter over quarter), which is in line with last year’s third-quarter pace and the projected rise for the fourth quarter.
Unless today’s retail data stumbles sharply, the outlook for modest growth is still a reasonable estimate.
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US: ADP Employment Report (1315 GMT) Is the case for optimism in the US economy hanging by a thread? Today’s estimate of private payrolls for January offers this week’s initial two-part clue that concludes with Friday’s official numbers from the Labour Department. Every jobs report is essential reading these days, but the stakes are especially high with the January figures in the wake of last week’s news that fourth-quarter GDP stumbled sharply, leaving the macro trend close to stall speed at last year’s close.
The good news is that economists are looking for a decent rate of growth in today’s release. Econoday.com’s consensus forecast for a 190,000 increase in private-sector payrolls in January is decent but hardly stellar. In fact, the projection represents a substantially lesser gain compared with the advances posted in the previous two months. But at this stage a modest rise that’s close to the 200,000 mark (seasonally adjusted) will ease fears that the US is slipping into a recession.
For deeper perspective that cuts through the short-term noise, I’ll be watching the year-over-year trend in today’s ADP release. Although the year-over-year pace has remained healthy via ongoing increases above the 2% mark, there’s been a slow-but-steady deceleration over the past year in the ADP numbers. Despite December’s robust gain, ADP reports that US private payrolls increased just a hair above 2% compared with the year-earlier level.
If the annual pace slips below 2% in January, the dip will mark the first time since the summer of 2013 that payrolls fell short of this round number. Would that be a sign of trouble? The crowd will hold its breath until the official data from Washington arrives on Friday.
US: ISM Non-Manufacturing Index (1500 GMT) Today’s update on the trend in the crucial services sector will be widely watched as the market looks for fresh evidence that the main source of stable growth is still humming. Recent numbers, however, look a bit softer than usual, raising concerns that the foundation for the US economy may be stumbling.
Granted, it’s premature to assume the worst. The ISM data for services printed at 55.3 in December, which is well above the neutral 50 mark that separates growth from contraction. But this number reflects a modest slowdown from previous months.
Meantime, Markit’s purchasing managers’ index (PMI) for services is hinting at even weaker growth. The flash PMI estimate for January dipped to 53.7 last month, marking the slowest rate of expansion in over a year for US services.
Markit’s chief economist advised last week:
“The [Services PMI] data are by no means disastrous, signalling a 1.5% annualised rate of economic growth at the start of the year. But the drop in business confidence to one of its lowest levels for over five years suggests that firms are bracing themselves for worse to come.”
Economists, however, are projecting that the recent numbers won’t slip any lower. Today’s ISM data for services is expected to tick up to 55.5 for the January reading, slightly above December’s level, based on Econoday.com’s consensus numbers. Meanwhile, the revised report for the January PMI (scheduled for 1445 GMT ) is on track to hold at the 53.7 flash estimate. If analysts are right, today’s releases for services will send a collective signal that this critical corner of economic activity will continue to post moderate growth in early 2016.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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