After Monday’s lull for economic reports, new numbers will start rolling in again today, offering more opportunities for assessing the depth of Europe’s deteriorating trend. First up is the release of the ZEW data that tracks sentiment in the German financial community, followed by the hard numbers on industrial output in the Eurozone for August.
Later, the week’s first look at new US data will shape expectations for a string of major releases scheduled for later in the week, including retail sales on Wednesday.
Germany: ZEW Economic Sentiment (09:00 GMT) Germany is under increasing pressure to ease back from its rigid policy of austerity at a time when the country’s macro trend appears to crumbling. Last week’s trio of discouraging news for industrial output, manufacturing orders, and exports raised a warning flag for Europe’s biggest economy and the wider Eurozone.
Finance minister Wolfgang Schaeuble got an earful in Washington over the weekend at the International Monetary Fund meeting, where he endured sharp criticism over his country’s policies, including a push for a balanced budget next year.
But on Monday there was no sign that Germany would budge. A spokesman for Chancellor Angela Merkel yesterday advised “for the government and for the country our efforts to have a balanced budget next year are of high value”.
Time to shift gears ... if Angela Merkel switches from austerity to a fiscal stimulus approach, she could drive growth in Germany and a Eurozone rebound. Photo: Thinkstock
Today’s update of ZEW economic sentiment data may bring about a change in the government’s perspective. It’s been clear for some time that the mood has been deteriorating in Germany. The expectations component of these widely followed numbers has been sliding all year, offering an early sign of trouble that’s now showing up in the hard data.
Economists think we’ll see another round of deterioration for October's sentiment reading. The consensus forecast from Econoday.com sees the ZEW expectations benchmark falling to 0.8 for last month, which would mark the lowest reading since November 2012. The current conditions metric is also projected to slump, dipping to 15 for October, or the lowest in more than a year.
Negative momentum on the macro outlook will hardly come as a surprise at this late date. The only question is whether the government leaders in Berlin are inclined to read the writing on the wall and rethink their austerity measures.
EU: Industrial Production (09:00 GMT) The crowd is anticipating a batch of discouraging numbers in today’s August report on industrial production for Europe. The consensus view is that there will be 1.7% decline in the monthly comparison and a 1% drop for the year-over-year change — sharp changes after the encouraging profile of expansion for July.
Given what we already know about industrial activity in August for the big-four economies, today’s release will serve as confirmation for the dark turn of events that’s already a matter of public record in the individual country reports. In particular, Germany has become a negative influence in Europe in terms of industrial activity.
Using Eurostat’s numbers for August, the annual contraction in Germany stands out for all the wrong reasons. Indeed, the 2.8% decline is considerably deeper than Italy’s relatively mild 0.7% year-over-year retreat. Meantime, France’s annual trend is more or less stagnant. Spain, by contrast, has become the growth leader, posting a comparatively robust 0.5% advance in August compared with the year-earlier level, according to Eurostat.
The outlook for Eurozone’s third-quarter GDP is essentially flat, according to Now-Casting.com’s revised projection as of October 10; the fourth quarter nowcast for GDP is slightly negative. Last week’s business survey update offers a bit more room for optimism, but not much. “Eurozone manufacturing edges closer to stagnation,” Markit Economics observed with the release of the final numbers for September’s purchasing managers index.
Today’s release will probably show that the hard data has already dipped into the red.
US: Small Business Optimism (11:30 GMT) Today’s September estimate of the mood in the small-business community will be closely watched for signs of any blowback for the US economy from Europe’s latest round of macro deterioration. Based on the consensus forecast, however, clarity may be in short supply in today’s report from the National Federation of Independent Business (NFIB).
Econoday.com advises that the crowd’s looking for a slight decline to 95.8 in September versus the previous month for this measure of sentiment among small firms, which collectively provide the leading source of employment in the US. If so, the mild setback would mark the first lesser comparison since June’s hefty decline. That would hardly be a convincing sign of trouble, however. At worst, a drop on par with the crowd’s forecast would point to more sluggish growth for this sector.
Indeed, payrolls in the small-business sector continued to grow at a modest pace in September, according to ADP data. In other words, there’s no sign at the moment of distress in this corner of the economy.
That’s also the message in last week’s update on jobless claims for the labour market overall. New claims dipped closer to a 14-year low for the week to October 4, suggesting that the economy is still poised for growth in the near term. But given the mounting problems in Europe’s macro trend lately, today’s NFIB report will offer an early clue as to whether weakness from abroad is at risk of spreading to the US. 