Thursday’s a busy day for economic releases, which includes a fresh look at the mood in Germany’s consumer sector via the monthly report from Gfk. Later, two reports on the US economy will deliver fresh guidance for evaluating the prospects for stronger growth in this year’s second half. First up is the government’s personal income and spending data for May, followed by the flash reading of Markit’s purchasing managers’ index (PMI) for the services sector in June.
Germany: Gfk Consumer Climate Indicator (06:00 GMT): Recent worries about the Greek crisis took a heavier-than-expected toll on business sentiment in Germany this month, according to yesterday’s updated survey numbers from the Ifo Institute. Will today’s report on consumer confidence via Gfk deliver similar news?
Businesses expectations certainly reflect a softer outlook at the moment. The Ifo metric that monitors expectations fell for the third straight month, suggesting that Germany's economic growth will be slightly lower than previously estimated. But perhaps a downgrade will be temporary, contingent on what happens with Grexit risk.
An analyst at the investment bank Nordea yesterday advised that if a Greek default and exit from the Eurozone is avoided, which the bank expects, the odds look encouraging for a rebound in the Ifo data in the months ahead. “Nevertheless, we expect German GDP growth to be closer to 1% to 1.5% than to 2% this year,” wrote Holger Sandte, Nordea’s chief European analyst.
Today’s focus turns to the mood in the consumer sector. The unsettled state of negotiations with Greece remains a key variable at the moment. How much has this drama affected sentiment?
Not much, based on Econoday.com’s consensus forecast for today's release. The Gfk Consumer Climate Index is expected to remain unchanged at 10.2 for the projected July reading. That’s a relatively elevated level based on recent history, which implies that the crowd’s effectively looking for continued strength in the consumer sector. Nonetheless, the optimism continues to rest on a rather shaky proposition: a satisfactory outcome to the Greek crisis.
US: Personal Income and Spending (12:30 GMT): The US economy has delivered a mixed bag of results lately, although the outlook remains upbeat. The prospects for strong growth may be diminished these days, but the worst fears of late look overblown.
If the case for a modestly brighter outlook is still reasonable, we’ll see the evidence in today’s May report on income and spending. Based on projections from economists, the numbers du jour are on track to provide support for thinking positively.
Briefing.com’s consensus estimate sees a robust recovery in consumer spending for last month — a 0.7% increase vs. April’s flat performance. That’s a reasonable prediction when you consider that we already know that retail sales in May advanced by a solid 1.25% vs. the previous month. In fact, retail spending comparisons has been relatively encouraging in the last past three months.
The year-over-year changes will provide today’s key signals for deciding if income and spending is reviving after a weak start to the year. Note that personal income’s annual pace picked up in April, providing support for higher consumer spending.
Bottom line: it would be surprising if today’s government update on spending and income bring disappointing news. It’s still premature to argue that US growth is about to accelerate in a dramatic degree, but it’s getting easier to make the case that the macro trend is stronger than the weak first-quarter numbers suggest. Today’s report is on track to provide fresh support for rebound narrative.
US: Services PMI (13:45 GMT): Growth in the services sector has slowed a bit lately, but the deceleration is mild compared with the lower rate of expansion in manufacturing. But for those anticipating a deeper shade of trouble, today’s flash reading for the services PMI data in June will provide a relatively bullish counterpoint.
Econoday.com’s consensus forecast anticipates that Markit’s PMI for services will tick up to 56.5 in today’s release. That’s only an incrementally higher reading vs. May’s 56.2, although both numbers reflect a healthy pace of growth. That’s no trivial point for the services sector, which supplies the lion’s share of the jobs in the US.
The recent rough patch for this corner of the economy came last December and extended into this year’s opening month. The subsequent rebound, however, looks convincing, with the services PMI sticking well above the 55 mark in recent months. More of the same is expected for today’s update, in which case the news will strengthen the view that the macro outlook is on track to perk up. All the more so if, as expected, the income and spending data that precedes the PMI release is upbeat as well.
Disclosure: Originally published at Saxo Bank TradingFloor.com