Monday’s a slow day for economic releases in Europe, which means that the report on business sentiment in Italy’s manufacturing sector may grab the crowd’s attention to an unusually high degree. Later, a couple of new data points for the US will kick off what will become a busy week of macro releases for the world’s biggest economy: the first look at the Markit US Services Purchasing Managers Index and an update on demand for housing via the Pending Home Sales Index.
Italy: Business Confidence Index (08:00 GMT) The mood in the manufacturing community in Europe’s third-largest economy has been inching higher lately, according to government data. That may strike some as odd, given the ongoing macro troubles for Italy. Nonetheless, Istat (the government’s statistics division) has been reporting that sentiment is holding on to its recent gains. The confidence index in manufacturing rose slightly to 100.0 (seasonally adjusted data) in the June update - the highest in nearly three years.
The trend is encouraging, although Istat’s numbers conflict with the recent survey figures from Markit Economics. The Markit/ADACI Italy Manufacturing Purchasing Managers Index (PMI) dipped in June for the second month in a row. Although the PMI for last month remained comfortably above the neutral 50 mark, the relative weakness lately stands in contrast with Istat’s data.
It doesn’t help that the hard data on industrial production has been slipping too. In the latest update for May, the output index for Italy suffered an unexpected slump. Adding another layer of doubt is last week’s news of a sizable decline in May’s industrial orders, a leading indicator for industrial activity.
The Istat data offers some support for thinking that the numbers could rebound in the near term. Assuming, of course, that today’s update on manufacturing sentiment continues to hold on to its recent gains.
US: Services PMI (13:45 GMT) Most economic indicators for the US are pointing toward growth, and today’s release from Markit Economics will likely offer another upbeat profile from the perspective of the services sector. The consensus forecast sees a slight dip to 60 for the July reading, down from 61.2 from July. But that leaves the PMI at an elevated level that implies that growth will roll on at a robust pace.
In the previous release, economic activity in services increased sharply in June. New business and employment rose at the fastest rate since the survey was launched five years ago, Markit advised. “The US economy is enjoying a major growth spurt, entering the second half of the year with very strong momentum,” the firm’s chief economist noted in the last update. “A further acceleration of growth signalled by the manufacturing and services PMIs in June suggests that the economy may have grown at an annualised rate of perhaps 4 percent in the second quarter.”
In the several weeks since that report was published, most economists have pared their predictions a bit for this week’s initial estimate of second quarter GDP for the US, scheduled for release on Wednesday. The outlook at the moment is closer to 3 percent. It’ll be interesting to see how today’s PMI data stacks up with the previous round of numbers as a clue for anticipating how (or if) to adjust expectations for this week’s second quarter GDP report. Keep in mind that ISM's measure of the services sector reflects a lesser rate of expansion in recent months, which implies that today's PMI report could retreat by more than expected.
US: Pending Homes Sales Index (14:00 GMT) The housing sector remains a weak spot for the US economy and so today’s update of pending sales data -a leading indicator of housing demand - will be closely watched for guidance on what to expect for the rest of year. The main question is whether the recent rebound in the pending sales index will persist in today’s release for June?
The May report was certainly impressive. Pending home sales jumped sharply, posting the biggest month-over-month increase in nearly four years and boosting the index to its highest level since last September. The revival has inspired some economists to predict that the housing sector will rally in this year’s second half after posting discouraging results in recent months.
Optimism will be under pressure if we don’t see a decent degree of follow through in today’s release. Given the influence of the housing sector on the business cycle, today’s report from the National Association of Realtors will provide crucial guidance, for good or ill, in the days ahead for assessing the next phase for the macro trend.
Using the consensus forecast for guidance, the market's expecting an anticlimactic report today relative to last month's release: a marginal gain of 0.3 percent for the index, sharply slower against the previous 6.1 percent surge.