Thursday’s a busy day for economic news, including the monthly update on Britain’s retail sales. Later, two US releases will sharpen the focus on projections for the timing of the Fed’s first interest-rate hike. We'll have fresh perspective on the broad macro trend via the Chicago Fed National Activity Index and new context for the labour market by way of the weekly release on jobless claims.
UK: Retail Sales (08:30 GMT)
The Ernst & Young ITEM Club this week trimmed its GDP forecast for Britain to a 2.7% growth rate for this year and in 2016. The group explained its modest cut as a recognition that “the UK economy continues to be buffeted by world events, with the developments in Greece and the Chinese stock markets being of most concern recently.”
The updated outlook aligns with the latest data from the National Institute of Economic and Social Research (NIESR). The group’s current three-month estimate of GDP growth ticked up to 0.7% in the July estimate. The projection implies 2.7% growth for the trailing 12-month period, which matches the ITEM Club’s revised prediction.
Britain’s economic growth has cooled recently, but the current round of forecasts still look relatively upbeat. As the NIESR noted a few weeks ago, its latest economic forecast reflects a “robust rate of growth [that] exceeds that of the economy’s potential over the same period, and so suggests spare capacity continues to be absorbed."
In turn, the group expects that the Bank of England "to begin increasing [the] Bank Rate in early 2016, most likely coinciding with the FebruaryInflation Report.”
Today’s monthly update on retail spending will test the NIESR’s expectations on timing for a rate hike. At the moment, the crowd’s feeling bullish on this front. Econoday.com’s consensus forecast calls for a modest uptick in the year-over-year spending growth rate to 4.9% for June, modestly above May’s 4.6% gain.
To the extent that consumer spending offers a clue on where the economy’s headed, today's numbers will support the view that the expansion will roll on at a solid if slightly lower rate compared with recent history.
US: Chicago Fed National Activity Index (12:30 GMT)
The US economy’s rebound from the first-quarter stumble has been a mixed affair so far, but the bearish predictions that a new recession is near still look far off the mark, as today’s update will likely remind.
Economic growth has been below trend in recent months, according to the three-month moving average of the Chicago Fed National Activity Index (CFNAI-MA3), a broad measure of macro conditions. CFNAI-MA3 has been posting mildly negative readings from February through May this year – a sign that growth has been modestly below the historical trend.
That’s hardly a calamity, but it's weak enough to keep everyone guessing. In any case, the trend isn't about to change much, according to economic estimates, although we may see a fractional improvement in today’s release.
Econoday.com’s consensus outlook sees the monthly reading for June report ticking up to negative 0.05, which translates into an expected negative value of 0.14 for the three-month average. In that case, growth will move closer to the historical trend rate – the closest, in fact, since January for CFNAI-MA3.
Economic growth may not look impressive at the moment, but it’s not about to weaken either. The Atlanta Fed’s GDPNow model tells us that next week’s initial estimate of US GDP growth for the second quarter will post an encouraging rebound to 2.4% (real seasonally adjusted annual rate). That’s a modest pace, but it’s a decent recovery from Q1’s 0.2% slide.
Today’s Chicago Fed update is on track to keep the Q2 estimate alive and kicking. What does that mean for the timing of the Federal Reserve’s first interest rate hike? Let’s just say that the St. Louis Fed President’s comments from earlier in week continue to resonate. There’s “more than a 50% probability right now” that the central bank will raise the policy rate at the September 16-17 meeting, James Bullard advised on Monday.
US: Initial Jobless Claims (12:30 GMT)
New filings for unemployment benefits ran sharply higher in late-June and early July, raising concerns that trouble was brewing. But last week’s update suggests that the recent spike was noise. New claims fall back to a seasonally adjusted 281,000 for the week through July 11, which is close to the 15-year low of 262,000 reading for late-April.
Today’s release is expected to confirm that the claims data still signals solid growth ahead for the labour market. Econoday.com’s consensus estimate calls for a slight decline in claims to 279,000 in today’s report. In that case, the crowd will have another data point that implies that the Fed will start raising rates, perhaps as soon as September.
Fed Chair Janet Yellen recently advised that she’s inclined to hike rates earlier rather than later, with the trade-off of keeping the tightening process gradual, which is to say spread out over a relatively long time frame. Her comments play down the odds of waiting until late-2015 or early 2016 for initiating policy tightening.
The final decision on timing will be heavily influenced by the data, of course. Based on today’s expectations for claims, however – a key leading indicator – a September rate hike can't be ruled out.
Disclosure: Originally published at Saxo Bank TradingFloor.com