Thursday is a busy day for economic releases, including several preliminary estimates of purchasing managers' indices (PMIs) for May on both sides of the Atlantic. Among the highlights: flash data for the Eurozone’s services and manufacturing sectors.
Later, the US economy is in focus as the crowd looks for new guidance in the wake of mixed economic news. The monthly update of the Chicago Fed National Activity Index will offer a big picture review of the macro trend in April, followed by an early look at economic activity in May via the flash PMI manufacturing data.
Eurozone: Manufacturing & Services PMIs (08:00 GMT) How is Europe’s nascent economic recovery holding up? Today’s flash data for purchasing managers' indices (PMIs) will be widely read as an early clue for anticipating the numbers in May.
By most accounts, the Continent has made some progress this year in reversing the negative bias in late 2014. But we’ve been here before only to see a nascent rebound fade. Is it different this time? For the moment, a cautious “yes” is a reasonable response. This year's first-quarter GDP increased 0.4% on a quarter-over-quarter basis for the Eurozone, a bit better than last year’s 0.3% gain. Now-casting.com’s current estimate anticipates another upgrade to 0.5% growth for Q2.
The main challenge is sustaining the upside momentum. Any number of challenges are lurking, including the uncertainty linked to Greece and its deeply indebted and contracting economy. But for the moment, it appears that Europe's recovery will endure – a view that’s expected to be reaffirmed in today’s preliminary estimates of business survey data for the manufacturing and services sectors in Europe overall.
Econoday.com’s consensus forecasts for May call for a slight gain for manufacturing (52.1 against 52.0 in April) and a fractional retreat in services (54.0 against 54.1). In both cases, the predictions are close to the best levels in a year. If the projections are right, the initial set of numbers for Europe’s macro profile in May will be off to an encouraging start for the still-precarious work of keeping the positive momentum bubbling.
US: Chicago Fed National Activity Index (12:30 GMT) In contrast with the macro trend in Europe, US economic activity has been downshifting lately – a bias likely to be confirmed in the April release of the Chicago Fed’s benchmark of broadly defined economic output.
Econoday.com’s consensus forecast sees the monthly data for this benchmark modestly reviving to 0.10 in April against a negative 0.42 for the previous month. Translating the monthly prediction into a three-month average, which is used for estimating recession risk, reveals a still-negative reading of 0.17.
That’s a bit better than March's level and, more importantly, well above the tipping point of negative 0.70, which the Chicago Fed advises is a value that marks the start of new recessions. Nonetheless, today’s update will reaffirm what’s already clear: the US economy has stumbled lately and is growing at a below-trend rate relative to the historical record.
It’s not yet clear if the sluggish growth in the first quarter (followed by the weak start to Q2 in April) is a sign of deeper trouble to come. From the vantage of the rear-view mirror, however, today’s data from the Chicago Fed will deepen the view that the near-term outlook for the US economy looks challenged.
In turn, the May economic profile could prove to be decisive. On that note, the flash data for Markit’s business survey report for this month’s manufacturing profile that follows will offer an early clue on Q2’s so-far wobbly trend.
US: Manufacturing PMI (13:45 GMT) Today’s release from Markit Economics is a must-read report. As one of the first estimates for business activity in May, the flash data for this month’s profile of the manufacturing sector will serve as a robust guesstimate for what could turn out to be a crucial month for deciding if business-cycle risk is on the rise or not.
We already know that April’s profile delivered a mixed bag. On the plus side, payrolls and housing construction rebounded while retail spending was flat and industrial production decreased for the fifth straight month. Meanwhile, the Atlanta Fed’s current nowcast for second-quarter growth remains at a sluggish 0.7%. That’s up slightly from Q1’s near-flat 0.2% gain, but for now the odds don't look convincing for expecting a solid revival in the April to June quarter.
Will today’s initial PMI data suggest otherwise? In the April report, manufacturing output dipped substantially. Still, the headline PMI settled at 54.1 last month – a sizeable decline from March's 55.7 but still solidly above the neutral 50.0 mark that separates growth from contraction.
Today’s release for May is expected to show a modest rise in the index to 54.6, according to Econoday.com’s consensus forecast. If so, today’s PMI report will provide support for thinking that the US economy will continue to post moderate growth in the near-term future.
Disclosure: Originally published at Saxo Bank TradingFloor.com