3 Numbers: GDP Pundits Expect Stall-Speed U.S. Growth

The first look at the official US GDP data for the first quarter is the main event for Thursday. Several hours before this release we’ll see April updates on German unemployment and business sentiment for the Eurozone.

Germany: Unemployment Report (0755 GMT): The mood in Germany’s consumer sector brightened in April, according to the monthly update of the Gfk Consumer Climate Index.

“Consumers are clearly assuming that the German economy will regain some momentum in the coming months,” the consultancy said in yesterday’s release. The benchmark’s rise in the latest estimate marks the highest reading since last September and “confirms GfK’s forecast published at the beginning of the year that private consumption will rise by approximately 2 per cent this year.”

The upbeat profile for the consumer sector follows mixed news for April via recently released surveys that track sentiment in Germany’s business and financial sectors published (based on ZEW and Ifo data).

In addition, growth appeared to decelerate according to the April flash data for the Germany Composite Purchasing Managers’ Index,, which eased to a nine-month low.

The question is whether the improving outlook in the consumer sector will prevail. A fresh clue arrives in today’s unemployment data for April.

The crowd’s looking for a relatively encouraging report. The official jobless rate is expected to hold at a low 6.2%, although some analysts expect that the number of unemployed workers is on track to tick higher on a monthly basis for the first time since last July.

A mild rise in the ranks of the newly unemployed is hardly a tragedy for an economy that continues expanding at a relatively steady if modest rate.

Meantime, the population of jobless workers fell for five straight months through February, remaining unchanged in March. As long as any increase in the jobless numbers for April is modest, the rosy outlook for the consumer sector will continue to provide support for thinking positively about Germany’s near-term macro trend.

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Eurozone: Business Climate Indicator (0900 GMT): Consumer sentiment in the euro area showed a bit of firming in the preliminary April estimate via the European Commission figures. Today’s follow-up release from the EC provides a look at the mood in the business community for this month.

Judging by this month’s mild bounce in the mood in the consumer sector (previously reported by the EC), it’s reasonable to wonder if sentiment in the Eurozone businesses community will brighten.

In fact, we already saw a brighter reading in the March data for the EC's Business Climate Indicator (BCI). Another increase in today’s first look at BCI for April will mark the second monthly improvement - the first back-to-back improvements since last autumn.

One clue for thinking positively: the European Central Bank yesterday reported that bank lending to companies and consumers ticked higher in March.

“While less effective than in the past, the ECB’s stimulus is yielding results,” Berenberg chief economist recently advised in a note to clients.

The market will be looking for corroborating support in today’s update on sentiment in the business community. Note, too, that the EC also publishes revised consumer sentiment data for April.

US: Q1 GDP (1230 GMT): Today’s initial estimate of GDP growth in the first quarter is widely expected to stumble. That’s not good, but the news will be quite a bit darker if consumer spending is at the center of weak Q1 data.

Econoday.com’s consensus forecast sees US output dropping sharply to a real (inflation-adjusted) 0.7% annual rate (seasonally adjusted).

The Atlanta Fed’s GDPNow model is projecting an even softer expansion in the first three months of this year at just 0.4%. Either way, the macro trend is on track to post growth well below the already sluggish 1.4% rise in last year’s Q4.

If forecasters are right, economic activity in Q1 is set to deliver the weakest growth since a mild contraction in 2014’s first quarter.

Judging by the US stock market, however, the crowd is either oblivious or confident that a soft Q1 is only a temporary affair that quickly gives way to a firmer trend in Q2. Indeed, the S&P 500 has rallied over the past two months, regaining all of the losses from January and February.

Deciding if optimism is still a reasonable view may turn on how the Q1 data for personal consumption expenditures fare. Quarterly PCE growth exceeded GDP’s pace in the past two reports.

In 2015’s Q4, for instance, PCE gained 2.4%, well above the tepid 1.4% GDP rise. But if the consumer edge fades and PCE stumbles in line with the expected deceleration in GDP growth, it’s going to be harder to dismiss the implications of a big picture slowdown in Q1.

Disclosure: Originally published at Saxo Bank TradingFloor.com