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3 Numbers: Will U.S. Services PMI Continue To Rebound In May?

Published 05/25/2016, 02:06 AM
Updated 07/09/2023, 06:31 AM
  • German consumer sentiment is expected to tick higher again via the Gfk index
  • The Ifo German business climate index on track to rise in today’s update for May
  • The US Services PMI data for May could point to a rebound for this critical sector

Germany’s economy is in the spotlight today with two updates on sentiment, starting with Gfk’s Consumer Climate Index. We’ll also see the monthly report on the Ifo Business Climate Index for May. Later, Markit publishes this month’s flash numbers for the US Services PMI.

Germany: Gfk Consumer Climate (0600 GMT): The mood in Germany’s consumer sector improved in the May estimate, according to Gfk’s previous report. The firm’s Consumer Climate Index increased to 9.7, an eight-month high. But sentiment in the country’s retailing sector remains subdued, according to Markit’s purchasing managers’ index.

The April PMI retreated to a three-month low of 51, just above the neutral 50 mark. The dip in the “PMI numbers signal a note of caution for German retailers, as growth in sales slowed sharply during the month,” a Markit economist said a few weeks ago.

The Gfk data, however, suggests that a firmer trend may be unfolding. Will today’s update strengthen that view? Analysts are looking for a slight rise in CCI—Econoday.com’s consensus forecast calls for an increase to 9.8. If so, the news will suggest, if only marginally, that the outlook for Germany's consumer sector is brighter than the PMI numbers imply.

Germany GFK Consumer Climate Index Vs Retail PMI

Germany: Ifo Business Climate Index (0800 GMT): Yesterday’s release of the ZEW survey data paints a familiar profile for evaluating the state of macro in Europe’s largest economy. Current conditions are improving while the outlook for the economy is weakening, or so it appears via the mood in the country’s financial sector.

ZEW’s current conditions index increased to 53.1, a four-month high in May. The index that tracks the near-term outlook, by contrast, dipped to a two-month low and remains close to the softest readings in two years. “Uncertainties regarding developments such as a possible Brexit currently inhibit a more optimistic outlook,” ZEW’s president said in a press release. Nonetheless, “the strong growth of the German economy in the first quarter of 2016 appears to have surprised the financial market experts.”

Will today’s Ifo survey report for May dispense a similar story? For what it’s worth, economists are expecting modest gains for the current and expectations indexes. Econoday.com’s consensus forecast sees the Ifo benchmark for current conditions inching up to 113.5, which translates into a middling reading relative to recent history. Meantime, the expectations data is on track to post a fractional gain—if so, the increase will mark the third monthly advance. If the forecasts hold up, the news will support the case for maintaining a positive if cautious outlook for German growth in the months ahead.

Germay IFO Business Survey Indexes

US: Services PMI (1345 GMT): Economic activity in the services sector appears to be strengthening, based on data published by Markit Economics and the Institute for Supply Management. Indexes from both shops show a modest pickup in March and April. After a run of weaker figures that hinted at the possibility of a recession for services earlier in the year, the last two updates point to a turnaround.

Today’s flash PMI data for May is expected to post another increase to 53.1, according to Investing.com. If the forecast is correct, this benchmark will inch up to a four-month high. That’s still a relatively modest level vs. last year’s readings. But the sight of the PMI advancing for the third month in a row will ease concern that the all-important services sector is stumbling.

In turn, another gain for the PMI will support expectations that GDP growth in the second quarter is still on track for a modest degree of improvement after a nearly flat performance in Q1. The Atlanta Fed’s current nowcast for Q2 GDP growth is 2.5% (as of May 17)—a healthy if unspectacular rebound vs. Q1’s tepid 0.5% rise.

A higher PMI reading in today’s update will provide another clue for thinking that the macro trend is recovering from the soft patch that weighed on the economy in early 2016.

US Services PMI Vs ISM Non Manufaturing Index

Disclosure: Originally published at Saxo Bank TradingFloor.com

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