After a muted start to the week, the number of economic releases is picking up and today's updates include the ZEW sentiment survey data for Germany. We’ll also see how the mood is faring in the small business sector for the US, followed by the US government’s estimate of retail sales in April.
Germany: ZEW Indicator of Economic Sentiment (09:00 GMT): Germany and Francepresented a united front to send a warning to Russia this past weekend, but a determined stance in reaction to the crisis over the Ukraine may come with a hefty economic price tag for Europe. For example, a recent reportissued by the European Commission estimates that imposing harsh sanctions on Russia could reduce growth in Germany to the point that Europe’s leading economy flirts with a new recession.
Unsurprisingly, the potential for macro fallout in Europe is weighing on economic expectations for Germany, according to recent estimates of investor sentiment via the monthly survey numbers from the Centre for European Economic Research (ZEW). The forward-looking economic sentiment benchmark fell to 43.2 in the April report—the lowest since last August. Although that’s still well above the historical average of 24.6, the recent weakness is a reminder that investors are increasingly cautious in the wake of the festering Ukraine crisis.
The crowd may be wary of the worst-case scenario in tussle with Russia, but expectations are still improving about the current state of the economic conditions in Germany. Indeed, ZEW’s economic situation index increased in April to 59.5, the highest in nearly three years.
The key questions in today’s report: Is sentiment still deteriorating when considering the near-term future? If so, is the souring mood taking a toll on the current assessment of economic conditions? Analysts expect another mixed review. The consensus forecast sees a slide in expectations, but that's projected to be offset by another rise in the measure of current conditions.
US NFIB Small Business Optimism (11:30 GMT): Is the small-business sector finally set to post stronger growth? That’s the main question for today’s monthly survey update from the National Federation of Independent Business (NFIB). Using the March data as a guide, there’s a bit more optimism that this critical slice of the economy is on the mend. The Small Business Optimism Index rose two points to 93.4 in the previous release, although this fell a bit short of the post-recession high. “Overall, the March gain more or less reversed the February decline,” said Bill Dunkelberg, the group’s chief economist. “While the Index still can’t seem to get above 95, we can be encouraged that the economy is at least crawling forward and not heading in reverse,”
New data from earlier this month suggests that the mild improvement is boosting the prospects for creating jobs. Earlier this month, Dunkelberg reported that “NFIB owners increased employment by an average of 0.07 workers per firm in April (seasonally adjusted), weaker than March but the seventh positive month in a row and the best string of gains since 2006.”
Additional support for thinking that the employment trend is improving in the small business community can be found in ADP’s estimate of jobs among these firms. Companies with fewer than 50 employees in the US have posted a run of stable and relatively encouraging growth in payrolls in each of the three months through April. Economists think we’ll see another installment of modest improvement in today’s NFIB data: the consensus forecast calls for a slight rise in the index to 94.5. That’s still modest, but if the prediction holds this sentiment benchmark will reach its highest level since the recovery began in mid-2009.
US Retail Sales (12:30 GMT): Consumer spending has snapped back from a winter freeze, according to recent data. For instance, US retailers reported a strong 6.2 percent rise in comparable store sales last month—the best monthly comparison in nearly three years, according to Retail Metrics.
The upbeat data is widely expected to continue with today’s monthly report on retail spending for April via the government’s widely read estimate. My econometric modeling suggests a 0.2 percent rise, although recent surveys of economists point to a stronger pace of growth for last month’s summary of consumer purchases.
The general assumption these days is that the US economy is rebounding in the second quarter after a rough start to the year. GDP growth in Q1 was nearly flat, rising a tepid 0.1 percent, according to the government’s initial estimate. But a review of March data suggest that there’s a substantially stronger tailwind going in to Q2. The latest OECD Economic Outlook anticipates US GDP growth for 2014 of 2.6 percent vs. last year’s 1.9 percent. “Household deleveraging and the rise in asset prices have caused household net wealth to rise significantly, which will help sustain consumption growth," the OECD advised. Today’s retail sales update isn’t expected to threaten that forecast.
