EU Money Supply Key To QE Plans, US Goods, US Jobs

Thursday is a moderately busy day for economic reports, including the main event for Eurozone releases: the monthly money supply figures from the European Central Bank. Later, a pair of US releases will be closely analysed for guidance on the macro outlook: new orders for durable goods and weekly jobless claims.

EU: Money Supply (08:00 GMT) The risk of economic stagnation or worse is on the rise for the Eurozone and the gloomy outlook is weighing on the mood in Germany. “Expectations with regard to the six-month business outlook fell to their lowest level since December 2012,” according to yesterday’s September update of the Ifo Business Climate Index. “The German economy is no longer running smoothly,” according to the accompanying press release.

Macro’s negative trend is almost certainly pushing the ECB closer to rolling out a program of quantitative easing, otherwise known as buying assets with newly printed money. There’s disagreement about how effective QE will be for Europe’s struggling economy, but there’s a growing sense that it’s now fate. As a result, today’s update on money supply aggregates for August will be analysed in terms of what it means for anticipating QE.

It’s notable that the annual growth rates for narrow (M1) and broad (M3) definitions of money supply have been trending higher lately. M3’s year-on-year pace quickened in July for the third consecutive month, reaching 1.8%. That’s still tepid by historical standards, but it’s also the strongest growth since last September. If the upswing continues in today’s data, it’ll be easier to imagine that the tipping point for launching QE is that much closer.

ECB President Mario Draghi's recent comments certainly leave room for QE. Although he speaks with the vagueness that befits a central banker, his remarks yesterday hint at things to come. “Monetary policy will remain accommodative for a long time and I can tell you that the (ECB) Governing Council is unanimous in committing itself to using the tools at its disposal to bring inflation back to just under 2%,” he said in a radio interview on Wednesday.

One facet of those tools will be on display in today’s release and the odds are low that we’ll see numbers that conflict with Draghi’s stated plans on raising inflation.


US: Durable Goods Orders (12:30 GMT) Today’s estimate of demand for manufactured goods for August will draw close attention after the dramatic increase in orders in the previous release.
July’s impressive advance inspired confidence that growth is strengthening for the cyclically sensitive manufacturing sector. If so, the acceleration bodes well for US economy. But there’s a glitch to consider: the 22.6% gain for new orders was due primarily to transportation – non-defense aircraft in particular. When you exclude transport, orders actually slipped a bit in the monthly comparison for July.

Today’s figures will help decide if the appetite for durable goods is genuinely heating up. The fear is that the July pop was a one-off event that was all about aircraft – quite a lot of it coming from foreign markets, in fact.
Not surprisingly, analysts are expecting some blowback after such an extraordinary gain. The consensus forecast sees new orders slumping 17% in August vs. the previous month, according to Econoday.com. But the ex-transport slice of the numbers are projected to post a mild gain of 0.8%.

To cut through the noise, focus on the year-on-year change in so-called business investment in today’s release (non-defense capital goods ex-aircraft orders). Economists use this definition as a rough proxy for gauging the willingness of companies to spend.
To the extent that the trend is positive, and it is in recent months, the thinking here is that higher purchases reflect a bullish view on the economy from corporate America's perspective. History offers a mixed view on this idea.
Nonetheless, the annual rate of growth for this measure of business investment has been improving for the past two months – and it's been consistently positive since February. If today’s numbers remain upbeat, the bulls will jump on the news as evidence that the future looks brighter for the economy.


US: Initial Jobless Claims (12:30 GMT) Unemployment benefits posted a sizeable decline inlast week’s report. In fact, the latest drop in new jobless claims – down 36,000 to a seasonally adjusted 280,000 – represents the biggest weekly decline since December 2012.
Even better, the slide left claims just a hair above the post-recession low of 279,000. As bullish signals for the labour market go, this one looks relatively potent.

One number doesn’t mean much for this volatile data set, of course, and so all the usual caveats apply. But any number in today’s release that leaves claims close to last week's number would still look convincing as a bullish clue.
Economists aren’t especially confident that today’s figures will measure up to that standard, however. The consensus view sees claims rising to 300,000. Yet it’s worth remembering that short-term predictions for this series are as slippery as a fish in a bucket of water.

For a clearer view of interpreting today’s report, focus on the annual change, which posted a healthy 11.9% drop for the week through September 13 vs. the year-earlier level. Another solid pace of decrease would be a sign that the labour market is still growing, which suggests that the economy will follow suit.