UK Jobs Report, US Housing Starts, US Output

• British economy to stay on bullish track
• US housing market to remain sluggish
• Mild uptick seen for US industrial production

The crowd will focus on today’s labour market update for the UK with investors looking for another round of encouraging macro news. In the US, a report on new residential construction will provide a fresh read on the state of housing, which has suffered from a run of mixed data lately. Shortly afterwards, the Federal Reserve publishes its monthly report on industrial activity.

UK Labour Market Report (08:30 GMT): The EY Item Club, a British economic forecasting group, boosted its 2014 growth forecast for Britain’s economy. “While risks remain, there’s no question that the UK’s economic recovery is on an increasingly firm footing,” the forecasting group said this week. “With GDP projected to grow 2.9 percent this year and 2.3% in 2015, and interest rates unlikely to rise until late 2015, the outlook is for a period of ‘steady as she goes’, characterised by sustained if unspectacular growth and underpinned by relatively low inflation.”

The forecast for the British economy is for more sunshine. Photo fazon1 / iStock

The slightly better outlook follows the government’s report that annual inflation in Britain fell to 1.6 percent through March, the slowest rise since 2009. Meanwhile, today’s labour market release is expected to show that average weekly earnings in the UK rose at an annualised rate of 1.8 percent for the quarter through February (or 1.7 percent less bonuses), according to Bloomberg. If the prediction holds, the news will inspire more confidence for the macro outlook. “March's UK inflation figures suggest that the six-year squeeze on real earnings is finally over,” according to Samuel Tombs of Capital Economics.

Today’s jobs report from the government is expected to fall in line with the upbeat numbers in recent months, including a projected drop in the claimant count. The consensus forecast sees the number of newly unemployed falling again, this time by 30,000 in March. That would mark the 17th consecutive monthly decline, providing another clue for expecting that the bullish momentum with Britain's economy will roll on for the foreseeable future.

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US Housing Starts (12:30 GMT): Residential construction has been sluggish lately, with the pace of housing starts treading water in February vs. the previous month. Is that a sign that the recovery for this key sector is slowing... or worse?

Some analysts are beginning to manage expectations down on this front, although the majority of economists still argue that the harsh winter is to blame and so a spring rebound for new residential construction is coming.
That's still a plausible outlook because several economic indicators have already perked up in the March numbers.

The markets are certainly looking for some improvement in today’s release. Starts are expected to increase to a 965,000 annualised pace for March, according to the consensus forecast—a decent improvement over February’s weak 907,000 total. That’s a bit more than my median econometric forecast, but it’s safe to say that the crowd’s assuming that today’s update will reflect a firmer pace of building activity.

The mood among home builders, however, doesn’t look particularly encouraging for anticipating a sharp snapback in the near term. For the three months through April, the National Association of Home Builders (NAHB) Housing Market Index has remained below the neutral 50 mark. Subdued sentiment implies that today’s starts data suffers a higher-than-normal risk of delivering weaker-than-expected news. “Builder confidence has been in a holding pattern,” said NAHB's chairman with yesterday’s update. “While these factors point to a gradual improvement in housing demand, headwinds that are holding up a more robust recovery include ongoing tight credit conditions for home buyers and the fact that builders in many markets are facing a limited availability of lots and labor.”

US Industrial Production (13:15 GMT): Today’s March report on industrial activity is widely expected to deliver another moderate increase. Analysts project a 0.4 percent monthly rise, according to the consensus forecast. That’s slower than February’s 0.6 percent jump, but any gain at this point will be taken as more evidence that the economy, if not accelerating, is at least returning to a decent rate of expansion.

The sight of industrial production posting another rise at the tail end of this year’s first quarter will hardly come as a shock at this point. With several March data points published, we have a fairly compelling profile of an economy that’s growing on multiple fronts. From higher retail sales to a faster pace of hiring last month, it’s clear that positive momentum overall is intact. Sales and construction of residential housing are mixed at the moment, but elsewhere there are signs that economic activity is on the mend. Today’s update on the industrial sector is on track to reinforce the case for optimism.

Curiously, the public doesn’t agree. Gallup’s polling of late shows that the percentage of Americans who think the economy is improving is near the lowest levels in recent history—38 percent, as of April 12. Meanwhile, the share who think the macro picture is getting worse in the US has been creeping higher for most of the year so far—around 57 percent at last count. But the trend in industrial activity—the year-over-year change, in particular—has remained upbeat. We’ll probably see another dose of hard data that skews positive today. When or if that lifts confidence on Main Street is another issue entirely.

Written By: Saxo Bank