Tuesday’s a moderately busy day for macro news, including the monthly update on industrial production for the Eurozone. We’ll also see new numbers for the NFIB Small Business Optimism Index. The main event, however, is the monthly release on US retail sales, which have fallen in each of the past three updates. But the crowd’s looking for some timely relief in today’s report on retail spending.
Eurozone: Industrial Production (09:00 GMT) The economic crisis in Europe is still a long way from anything resembling resolution, Roger Bootle of Capital Economics advised this week. “If you look at the Eurozone’s bond markets, you could readily conclude that the Eurozone economy is nothing to worry about,” he wrote in The Telegraph on Sunday. “The trouble is that the markets were in a similar state of insouciance immediately before the existential crisis of 2012 blew up.”
Fair enough, but for the moment the incoming data continues to point at a mild recovery – or, if you prefer, an easing of the severity of the current crisis. It’s a precarious revival, subject to revision at a moment’s notice perhaps. But today’s update on industrial output for the Eurozone is expected to deliver a new installment of cautiously optimistic data.
The crowd’s looking for a 0.3% monthly rise in production for February, according to Econoday.com’s consensus forecast. If accurate, the rise would mark an incremental rebound after January’s 0.1% decline. More importantly, the year-over-year pace is expected to remain positive, albeit at a lesser pace of 0.8% vs. the 1.2% rise in the previous report. Nonetheless, a gain for the annual comparison would be the third straight advance for year-over-year growth.
Anticipating a rise in some degree is a reasonable view based on numbers for Europe’s big-four economies, which have already reported February data for industrial output. On a year-over-year basis, three of the four posted increases (Italy’s output dipped slightly), according to Eurostat figures. But France’s moderate acceleration in growth held steady while Germany and Spain’s pace picked up in the annual comparisons.
Meantime, business survey data for manufacturing hints at ongoing improvement and perhaps an acceleration in growth. Markit’s Eurozone Manufacturing Purchasing Managers Index (PMI) inched ahead in March, reaching a 10-month high of 52.2, or moderately above the neutral 50.0 mark that separates growth from contraction. The latest PMI reading “signalled slightly stronger growth of the manufacturing economy than the preliminary reading, adding further to signs that the Eurozone economy is reviving after last year’s slowdown,” Markit’s chief economist noted earlier this month.
Today’s monthly hard data on industrial production will probably provide additional support for thinking positively if cautiously about Europe’s recovery prospects.
US: Retail Sales (12:30 GMT) The stakes are high for today’s monthly update on retail spending. In the last three releases, consumption fell sharply, raising questions about the near-term outlook for the US economy. There's a debate about whether the recent downturn is a temporary affair or the start of something darker. In any case, most analysts expect the slide to end today via a revival in growth for March.
Briefing.com’s consensus forecast sees spending snapping back with a strong 1.0% gain – a sharp contrast from the 0.6% slide in the previous month and January’s 0.8% tumble. Even if the crowd is right, doubts will linger about the degree of forward momentum in America’s macro profile. But a positive number in some degree is essential at this stage.
By contrast, a negative surprise – particularly one that reflects a fourth month of red ink – would weigh heavily on sentiment. The last time we saw four straight losses in a row for retail sales in monthly terms was during the previous recession. A repeat performance is a low-probability event for today’s report, but if the unlikely occurs it’s going to be a lot tougher to dismiss the idea that the US economy is slipping over to the dark side of the business cycle.
US: NFIB Small Business Optimism Index (13:00 GMT) For additional context on the outlook for the US economy, today’s monthly report on the mood in the small business sector, where the bulk of jobs are created, will be widely read. Econoday.com’s consensus data expects that this sentiment benchmark will hold on to its recent gains by ticking up to 98.2 for March – fractionally above February’s 98.0.
If so, the mood in the small business community will remain more or less unchanged by the reckoning of the National Federation of Independent Business (NFIB). But that’s still encouraging when you consider that the employment component of NFIB’s survey numbers has been trending higher lately. In fact, the latest polling for March advised that “reported hiring was very strong” last month, NFIB reported. The March increase reflected a “net addition of 0.18 workers per firm, eclipsing the substantial readings in January and February.”
Unfortunately, first-quarter growth in the US overall is expected to decelerate sharply, perhaps to the point of delivering a stagnant Q1 GDP report, according to the Atlanta Fed’s current GDPNow estimate. “It appears that economic growth has weakened further from Q4’s rather tepid pace, expected by many to come in below 2 percent at an annual rate,” NFIB explained. “This is not supportive of much job growth going forward, especially with weak retail sales.”
Nonetheless, the stronger figures on hiring among small firms for last month suggest that today’s update of the optimism index will hold its ground if not rise a bit. But that won’t mean much if today’s retail sales report, which arrives 30 minutes earlier, brings bearish news.
Disclosure: Originally published at Saxo Bank TradingFloor.com