- The Distributive Trades Survey will show if strong UK retail sales can roll on
- A rebound is expected in today’s flash US Services PMI for February
- New January home sales in the US are on track for a modest fall
- But there are hopes for moderate housing recovery in the US in the months ahead
The UK retail sector is in focus today, with February survey numbers via the CBI Distributive Trades Index. Later, the US returns to the spotlight with the flash February report for the Services PMI, followed by the government’s update on new home sales in January.
UK: CBI Distributive Trades Survey (1100 GMT): Consumer spending in Britain continues to rise at a healthy pace. Last week’s hard data on retail sales for January revealed the strongest monthly increase in over two years. The trend is unmistakably positive as well: year-over-year spending jumped 5.2%, a four-month high.
The bullish news in retail is certainly welcome in the wake of disappointing numbers from the manufacturing sector. The December update from the government revealed that output stumbled, cutting the year-over-year trend to a 1.7% decline—the weakest annual comparison in more than a year.
If trouble is lurking for the UK economy, there’s no sign of stress in the consumer sector. “Overall, the main engine of growth in the UK economy, consumer spending, is still firing on all cylinders,” an economist at Scotiabank said last week. “Cheap petrol and food has left consumers with more spare cash and they are spending it on ‘fun stuff'.”
The question is whether the robust appetite for consumption can roll on? No less may be necessary to offset the weak industrial sector. GDP’s growth rate in the UK dipped to 0.4% for the three months through January, according to the National Institute of Economic and Social Research, a consultancy in London. That’s still a respectable gain, but it marks the slowest rate in four months, due mostly to stumbling activity in production, NIESR advised.
For obvious reasons, this isn’t a great time for a downturn in retail spending. Recent history suggests that’s a low-probability risk, but if that’s an outdated view that’s headed for a downgrade we’ll see an early warning in today’s February update of the Distributive Trades Survey from the Confederation of British Industry. For the moment this leading indicator of retail activity has been trending positive at a moderate rate by holding steady in the 15 to 20 range in the past two updates. A sharp break to the downside—particularly one that dipped below the recent low of 7—would raise new questions about the ability of British consumers to keep their spending spree in high gear.
US: Services PMI (1445 GMT): Is the services sector stumbling? There’s a lot riding on the answer—for two reasons. US economic activity is heavily dependent on services—more so than ever in the wake of recent weakness in manufacturing. But the January sentiment data for services looks worrisome. Another stumble in today’s flash report for February will heighten concerns that macro risk is spreading beyond manufacturing.
Even an optimistic spin on the latest figures can’t whitewash the fact that Markit’s purchasing managers’ index for services tumbled to its lowest reading in 27 months. “Slower service sector activity, combined with subdued manufacturing growth, means January’s expansion was the weakest seen since October 2012 with the sole exception of October 2013, when business was affected by the government shutdown,” noted Markit’s chief economist recently. Adding to the subdued profile is the sight of a competing index—ISM Non-Manufacturing—easing to a two-year low last month.
The good news is that today’s initial PMI estimate for February is on track to tick higher, offering a sign that the services sector may be stabilizing after several months of deceleration. Econoday.com’s consensus forecast sees the headline PMI number inching up to 53.7 after last month’s 53.2.
That’s still a relatively modest pace for this corner of the economy based on recent history. But if the crowd is right, the services PMI is set to post its first gain in four months. Keep in mind, however, that forecasts can be wrong and a big miss today on the downside will likely rattle confidence far and wide with respect to the US macro outlook.
US: New Home Sales (1500 GMT): Yesterday’s upbeat numbers on existing home sales for January offer more evidence that November's dramatic slide in real estate transactions was a quirk. Indeed, sales inched higher last month, building on the sharp increase in December. The news inspires hope that the housing recovery, although moderate, will endure in the months ahead.
“Despite the global economic slowdown, the housing sector continues to recover and will likely help the US economy avoid a recession,” said the chief economist at the National Association of Realtors, the group that publishes the existing sales data.
Today’s release from the government on new home sales will provide more context for evaluating the outlook. Economists anticipate a mild dip in January to 520,000 (seasonally adjusted annual rate), down from 544,000 at last year’s close. But that’s still a solid pace—just a hair below the post-recession high that was set a year ago.
But is there a joker in the deck? Consumer confidence this month stumbled to a seven-month low, according to yesterday’s numbers from the Conference Board. “Consumers’ assessment of current conditions weakened, primarily due to a less favorable assessment of business conditions,” the CB’s director of economic indicators explained. “Consumers’ short-term outlook grew more pessimistic, with consumers expressing greater apprehension about business conditions, their personal financial situation, and to a lesser degree, labor market prospects.”
Is that a problem for housing? Stay tuned for a new clue in today’s update on new home sales.
Disclosure: Originally published at Saxo Bank TradingFloor.com