US Store & Home Sales, EU Consumer Confidence
Saxo Bank | Apr 22, 2014 06:37AM ET
• US chain stores' sales may rebound in April
• Positive thinking expected from European consumers
• Consensus sees dip in US home sales for March
Tuesday is a relatively quiet day for economic reports. The main event in Europe: an update on consumer confidence, as calculated by the European Commission. Meanwhile, keep an eye on two numbers for the US: a weekly release on chain store sales and the monthly release for existing home sales.
US Chain Store Sales (11:45 GMT): Today’s update brings another number for judging the state of the economy’s rebound after a severe winter. Most of the data published for March so far point to a bounce higher, including a strong month for retail sales.The question now: will the revival extend into April? The upbeat reports for March suggest as much, but an early clue on the retail front via chain store sales looks a bit wobbly. This could be noise, of course, which has a habit of infecting the weekly data in the short term. All the more reason to watch today’s release and compare it with the past several weeks for a deeper read on what to expect for April’s retail sales when the government publishes the next monthly report.
Meanwhile, the trend is down for April’s first two weeks of store sales, according to the International Council of Shopping Centers (ICSC) and Goldman Sachs, which jointly publish the numbers. “Warmer weather brought mixed results as some retail segments finally warmed up as others seemingly cooled down this past week,” ICSC noted in last week’s report. But the year-over-year trend has been inching higher this month. That’s a positive for thinking that the soft weekly comparisons will soon give way to firmer numbers. Perhaps today's the day.
EU Consumer Confidence Index (14:00 GMT): The Eurozone economy is showing signs of improvement by some yardsticks, but the upturn remains a feeble when measured across the Continent overall. The optimists, however, are quick to point out that falling bond yields are one clue for thinking that the worst is past. In turn, that inspires the view that the euro crisis is finally giving way to better macro conditions. There’s some truth in that, and you can point to some recent economic numbers as evidence. But there are still plenty of problems to clean up. The main challenge is deciding if disinflation/deflation risk has been stamped out.
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The latest update on this front doesn’t look good: the year-over-year pace of the consumer price index slipped to a thin 0.5 percent in March, the lowest since late-2009. The optimistic spin is that short-term factors—including a late Easter and lower energy costs—are mucking up the numbers at the moment. April’s inflation rate, a number of analysts project, will rise a bit and take some of the pressure of the European Central Bank (ECB) for a dramatic change in policy.
It helps that optimism in the Eurozone remains buoyant. The inflation numbers may be giving economists heartburn, but consumers don’t seem to mind. The macro implications are troubling, but expectations mean a lot too. Indeed, if the crowd’s outlook continues to improve, that’s no trivial factor for thinking that the hard data will follow, in which case the threat of deflation will recede. The good news is that we can still see positive momentum for sentiment, according to the European Commission’s Consumer Confidence Indicator (CCI).
In the March update, CCI jumped to its highest level in nearly three years. Another increase in today’s flash estimate for April won’t wipe away the hazards that still hang over Europe, but it will strengthen the view that the recovery, precarious as it is, will roll on. The European Central Bank may still have to take a more aggressive stance on monetary stimulus, but the task will certainly be easier if consumers are inclined to think positively.
US Existing Home Sales (14:00 GMT): Real estate continues to be a weak spot for the economy, but it’s not yet clear if this is a temporary bump or something with longer-term implications. Perhaps today’s update on existing home sales for March will clarify the outlook.
At the moment, there’s no doubt that sales have been weak.The annualised rate of purchases has been trending lower for months. Home prices are still rising at a healthy rate, but the number of transactions for residential real estate in February slipped to the lowest level in over a year. “We had ongoing unusual weather disruptions across much of the country, with the continuing frictions of constrained inventory, restrictive mortgage lending standards and housing affordability less favorable than a year ago,” said the chief economist of the National Association of Realtors, which publishes the existing sales data. “Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year.”
Today’s report will test that theory. On a positive note, financing rates remain stable in the low-four-percent range, based on the national average for the 30-year-fixed mortgage. With other economic numbers showing signs of revival lately, combined with no obvious threat from interest rates at the moment, it would seem that conditions are favourable for a rebound in home sales. Economists, however, are sceptical. The consensus forecast sees existing purchases slipping again in the March data. If the prediction holds, the news will reconfirm what was already clear: the housing sector has yet to follow the recovery narrative that’s unfolding elsewhere in the macro news.
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