It’s a busy day for economic news, starting with the monthly update on Germany's industrial production — a release that will be closely read after yesterday's disappointing report on new orders for manufactured goods. The Bank of England’s interest-rate statement that arrives soon after will be a key event in the wake of conflicting comments from policymakers in recent weeks. Meanwhile, the weekly release on US jobless claims will provide more context for evaluating last week’s disappointing numbers for payrolls in March.
Germany: Industrial Production (06:00 GMT) Factory orders in Europe’s main economy slumped in February. The news came as a surprise — the consensus forecast was looking for a solid gain. We now know that new orders for manufactured goods in Germany retreated for the second straight month — the first back-to-back monthly declines since last summer. Is this a sign of trouble for the macro trend? No, or at least it doesn’t appear to be, based on a broader reading of the economic data. But if the upbeat outlook is due for some downsizing, today’s report on industrial production for February could be a catalyst.
For now, analysts expect encouraging numbers. Econoday.com’s consensus forecast calls for a 0.2% increase in the monthly comparison. A bit mild relative to January’s data, but such a rise would mark the fifth consecutive monthly increase in seasonally and calendar-adjusted terms. In that case, the news will take some of the edge off of yesterday's gloomy numbers for factory orders.
Meantime, business survey data for manufacturing suggests that the positive momentum will continue. The Markit/BME Germany Purchasing Managers Index (PMI) for the sector rose to an 11-month high in March. Output and order growth accelerated at a time of a generally improving economic backdrop, Markit noted last week. Although the latest hard data for factory orders in February tells a different story, the latest survey numbers imply that February’s wobble is temporary. “Survey participants commented that an improving economic environment and stronger demand from both domestic and foreign markets accounted for much of the rise in total new orders,” Markit reported. “Where companies noted an increase in new export business, they partly linked this to the weak euro.”
Does the upbeat mood among manufacturers lay the groundwork for ongoing growth in industrial output? Probably, although keep an eye on today’s year-over-year comparison for additional perspective. Measured in raw terms, industrial production slipped 2.3% in January compared with the year-earlier level. That’s a reminder that despite the recent improvement in the macro profile, there’s still a fair amount of risk hovering over the current phase of recovery. Even so, given the upbeat mood in manufacturing — the core facet for industrial activity — output will likely trend positive for the foreseeable future.
Bank of England Policy Announcement (11:00 GMT) The debate about monetary policy in Britain will be under the microscope today with the scheduled announcement from Threadneedle Street. Recent comments from policymakers, however, suggest a divergence of opinion on the best course of action in the near term.
Andy Haldane, the chief economist at the Bank of England (BoE), recently said that cutting the policy rate below the current 0.5% level is more than a trivial possibility. “The chances of a rate rise or cut are broadly evenly balanced,” he advised last month. “"In other words, my view would be that policy may need to move off either foot in the immediate period ahead, depending on which way risks break.”
A few weeks later, BoE Governor Mark Carney said that it would be “extremely foolish” to cut rates in a bid to battle low inflation, which was zero for the year-over-year comparison through February via the headline consumer price index — a record low. By some accounts the weak pricing environment is a signal that the bank should cut rates. But Carney seemed to suggest otherwise late last month when he said that “we're still in a position where our message is ... that the next move in interest rates is going to be up.”
With outright deflation just a tick away, is the BoE really contemplating a rate hike? No, at least not for today’s announcement, based on the consensus forecast. Econoday.com’s survey data anticipates that the current 0.5% policy rate will remain unchanged.
At the same time, growth continues to bubble overall, despite the recent decline in inflation. The UK economy’s pace picked up to 0.7% for the three months through March compared with the previous quarter, according to this week’s first quarter estimate from the Confederation of British Industry (CBI). "The outlook for 2015 looks encouraging,” CBI's deputy director general said. “Our surveys show it's been a solid start to the year with the prospect of stronger growth to come.”
Does the encouraging outlook for GDP trump the weak CPI data and thereby tip the scales in favour of Carney’s analysis? Perhaps, but let's see if the BoE takes a stab at clarifying expectations today.
US: Initial Jobless Claims (12:30 GMT) There’s more uncertainty on the outlook for the US labour market in the wake of last week’s disappointing report for payrolls in March. Yet some of the incoming numbers since Friday’s news of a dramatic deceleration in growth last month provide a degree of comfort for thinking that the March stumble isn’t as dark as it appears.
The positive clues include the upbeat numbers for the services sector in March via the ISM Non-Manufacturing Index, the robust and slightly stronger growth rate for employment in particular. Meantime, the government’s estimate of job openings in February ticked up to a 14-year high.
Today’s weekly update on new filings for unemployment benefits will provide another data point for deciding if last month's slowdown in growth is temporary or the start of an extended run of weakness. For the moment, jobless claims leave plenty of room for optimism.
Indeed, filings dropped sharply in the final full week of March, to a seasonally adjusted 268,000— a whisker away from a post-recession low. According to this leading indicator, the outlook for payrolls, and the economy, remains bright overall. Why then did payrolls suffer last month? Arguably it’s mostly due to weakness in the oil patch. Thanks to a dramatic slide in oil prices since last summer, layoffs have jumped sharply in the energy industry. In short, the deceleration in jobs is a relatively contained event.
Today’s claims data is expected to give back most of the previous decline. Briefing.com’s consensus forecast sees new filings rising to 285,000. If so, the worst you can say is that claims are more or less unchanged over the past several months. But that still translates into a healthy year-over-year decline of roughly 8% for last week. That’s weak tea for economy bears looking for a smoking gun.
Disclosure: Originally published at Saxo Bank TradingFloor.com