An early look at the economic trend in April is on tap for today via several flash PMI numbers for Europe. The first estimate of this month's manufacturing PMI data for the US will be published today as well. In addition, an update on new home sales for the US in March will provide more context for evaluating the outlook for the housing market.
Eurozone Flash Composite PMI (08:00 GMT): The macro profile for April is still largely a mystery, but today’s flash report for manufacturing and services PMI data will set the tone for expectations. Overall, the outlook for moderate growth will probably survive today’s updates. Economists project that manufacturing activity will remain unchanged at a moderate rate of growth while the services sector will decelerate a bit but stay well above the neutral 50 mark.
The Eurozone’s mild recovery, in short, is expected to roll on in April, according to these benchmarks. PMI data in both series has been pointing to growth since last summer and most analysts see more of the same in this month’s update. The main issue is whether the growth is strong enough to counteract the rising threat of disinflation/deflation. With Eurozone year-over-year inflation slipping to a faint 0.5 percent in March, even die-hard monetary hawks are talking about the possibility that a more aggressive round of monetary stimulus may be necessary.
The danger is that the low rate of inflation is an early warning that Europe’s weak recovery is at risk. Recent data suggest otherwise, albeit moderately so. Industrial production across the Eurozone in February rose 0.2 percent, a mild improvement over January’s flat output. But with inflation still falling, there’s widespread concern that growth could weaken. If that’s a genuine threat, we’ll see the evidence in today’s PMI report via a surprisingly soft set of numbers.
US Flash Manufacturing PMI (13:45 GMT): The economic profile for March suggests that a spring revival is underway. A cross section of macro data show that the first quarter ended on a positive note overall. The housing sector is the exception and so real estate's trend bears monitoring. But with a broad set of numbers elsewhere pointing to faster growth, economists think the recovery will strengthen and lift all boats in the months to come.
Today’s flash estimate of manufacturing activity for April is widely expected to reaffirm a healthy expansion in this cyclically sensitive sector. The consensus forecast calls for a rise in Markit’s PMI index to 56.3 from 55.5 in March. If the prediction holds, the gain will look especially encouraging since it follows weeks of mostly positive economic reports. No wonder, then, that the Conference Board’s Leading Economic Index (LEI) posted its third straight increase for last month's reading. “The March increase in the LEI suggests accelerated growth for the remainder of the spring and the summer,” notedan economist at the Conference Board. The capital markets will have another reason to agree if the PMI update for April falls in line with expectations.
US New Home Sales (14:00 GMT): Existing home sales for March dipped to a one-and-a-half-year low, the National Association of Realtors (NAR) reported yesterday. The news offered another sign that the housing market is the weak link in what’s otherwise looking like a spring revival for economic growth. But some are wondering if the property market will spoil the party.
Today’s release on new home sales for March will provide another look at how the real estate market fared at the end of this year’s first quarter. Economists expect some improvement, with sales rising to 455,000 last month vs. 440,000 in February. That forecast represents a modest improvement, but if accurate it will suggest that new sales are at least stabilising. That lays the foundation for thinking that the rest of the year could see more improvement in housing generally if the recent improvement in the broad trend persists.
“There really should be stronger levels of home sales given our population growth,” advised the chief economist at the NAR. A stronger economy should help too. Nonetheless, there’s a fair amount of caution these days when it comes to expectations. That includes the latest forecast from Doug Duncan. chief economist at Fannie Mae, the government-controlled mortgage finance company. “We have downgraded our housing forecast slightly due to a lacklustre sales picture, but the recent loss of momentum is likely a temporary one,” he said earlier this week. “Overall, we expect housing to add 0.3 percentage points to economic growth this year. While existing home sales have remained essentially flat, we continue to believe that new home sales will increase at a double-digit pace.”
That’s probably asking a bit too much for today’s numbers, although the crowd thinks sales will at least move in the right direction.
