Monday’s a moderately busy day for economic news, including the first look at business sentiment data for March via the European Commission’s monthly estimate. Later, two US releases will provide more context for deciding if the nascent signs of stronger economic growth are the real deal. The key release is the monthly data on personal income and spending, followed by a leading indicator for the housing market: pending home sales figures from the National Association of Realtors.
Eurozone: Economic Sentiment (09:00 GMT) Last week brought several encouraging reports for projecting more improvement in Europe’s broad macro trend. Upbeat numbers for Markit’s business surveys turned higher in March, with strength in new orders looking surprisingly robust. Meantime, Germany’s stronger run of growth continues to look solid, as implied by the ongoing rise in the Ifo Climate Index for this month's sentiment metric. In addition, Friday’s weekly release of Now-Casting.com’s estimate of first-quarter GDP for the Eurozone held on to its recent gains and inched up to 0.41% (quarter over quarter), the highest so far for the Q1 projection.
A 0.4% GDP gain, assuming it pans out, is still a tepid pace of growth. But at this stage the key issue is the directional change and its persistence. For the moment, the trend looks mildly promising. If Now-Casting.com’s prediction holds, the advance will mark the third straight quarter of improvement and the strongest quarterly gain since 2011.
A brighter mood among consumers for the Eurozone overall has been anticipating a degree of macro revival. Consumer confidence in March rose to its highest level since 2007, according to flash data recently published by the European Commission (EC). Today’s release will deliver revised consumer numbers, along with the first look at the business survey figures for this month. The key question: will sentiment in the business sector show some of the optimism that's been bubbling among consumers?
As the chart below shows, the mood in European’s commercial sector has yet to confirm the recent gains in consumer sentiment. That’s a sign that the recent improvement in the macro profile is still a precarious affair. A solid rise in today’s update of the Business Climate Indicator for March would certainly help strengthen optimism, although even a slight rise from last month’s 0.07 would be productive at this point. Otherwise, if the business sector's outlook remains sluggish, doubts will linger about the recovery's stamina.
US: Personal Income & Spending (12:30 GMT) The disappointing retail sales report for February suggests that today’s numbers for the broadly defined category of personal consumption will be soft as well. The bulls argue that the sluggish numbers are due to a harsh winter rather than dark clouds on the horizon for the US macro trend. Last week offered several updates that support the optimists, including encouraging business survey numbers for the manufacturing and services sectors in March via Markit’s purchasing managers indexes. In addition, last week’s update on jobless claims points to ongoing growth for payrolls.
As part of the spending and income report today, we’ll also see the monthly inflation estimate for February based on the price indexes for personal consumption expenditures, which is said to be the Federal Reserve’s preferred measure for inflation. With economic reports picking up again in the latest round of updates, it’ll be interesting to see if pricing pressures show any signs of firming. The previously released February update on the consumer price index was slightly higher than the previous month's figure, but on a year-over-year basis the inflationary trend still looks weak. But with petrol prices stabilizing after recent declines, economists are projecting that inflation will tick higher in the months ahead.
Alternative measures of inflation are are looking quite a bit stronger lately, including State Street’s PriceStats data, which has posted a dramatic turnaround in recent weeks. Today’s February inflation figures in the spending and income report aren’t likely to show much change from the last release, however. Core PCE, which excludes energy and food, is on track to rise 0.1% on a monthly basis, according to Briefing.com's consensus forecast – unchanged from the pace in the previous update.
Personal income's 0.3% monthly gain is expected to hold in today's report too. The key change, according to economists, is the revival in consumption: a monthly increase of 0.2%. That's still sluggish, but if the forecast holds, it'll mark the first monthly gain for consumer spending since last November.
US: Pending Home Sales Index (14:00 GMT) Last week brought better numbers for the housing market, which has been flat to weak lately. Notably, sales for existing and new homes posted gains last month – the first time that both corners of the market have improved on a monthly basis for transactions since December. Demand for newly built houses was especially strong in February, rising to a post-recession high.
The monthly data on pending sales has hinted at improvement all along. Save for a rare stumble last December, the Pending Home Sales Index (PHSI), which is considered a leading index for purchases, has been trending higher. In the January release, the benchmark ticked up by 1.7%, reaching a minor milestone of five straight year-over-year gains. “Contract activity is convincingly up compared to a year ago despite comparable inventory levels,” said the chief economist at the National Association of Realtors, which publishes the data. “The difference this year is the positive factors supporting stronger sales, such as slightly improving credit conditions, more jobs and slower price growth,” he explained last month.
Today’s report for February is expected to post another rise, albeit at a much slower rate vs. the last update, based on Briefing.com's consensus forecast. Nonetheless, even an incremental advance should be greeted as good news if, as recent reports suggest, economic growth is recovering from its winter stumble.
The chief economist at Freddie Mac, the government’s financing arm for mortgages, recently advised that he’s still anticipating that 2015 will mark the “best year for home sales and new home construction since 2007.” Is that forecast still a reasonable guesstimate? Today's pending home sales data will offer a new clue.
Disclosure: Originally published at Saxo Bank TradingFloor.com