Germany’s economy is under review in today’s macro updates, including the February release of the Ifo’s survey numbers that track business sentiment. (We’ll also see revised Q4 GPP data for Germany at 0700 GMT.) Later, two key US numbers will attract close attention: the US Consumer Confidence Index for February and last month’s data for existing home sales.
Germany: Ifo Business Climate Index (0900 GMT) The economic news for Europe’s main economy has been on the soft side lately. Earlier this month we learned that industrial production in December sagged for a second straight month, reflecting ongoing weakness in export markets.
Meanwhile, last week’s ZEW data revealed that financial analysts continued to downgrade macro expectations. “The looming slowdown of the world economy and the uncertain consequences of the falling oil price put a strain on the ZEW Indicator of Economic Sentiment,” the Centre for European Economic Research said in a statement.
Will today’s sentiment report for Germany’s business sector continue to trim expectations? There’s already weakness to consider in the previously published January profile. The Ifo’s business expectations index dipped sharply last month, falling to 102.4 - a five-month low.
Yesterday’s flash data for Germany’s manufacturing sector in February also reflects deceleration in the big-picture trend. Output for the sector increased at the slowest pace in more than a year, Markit noted, although the services sector continued to expand at a solid rate.
Nonetheless, the German economy "appears to be in the midst of a slowdown, according to February’s flash PMI results”, said an economist who oversees the numbers. “Although the PMI is still signalling an overall expansion in economic activity, the rate of increase slowed for the second month running and was the weakest since last July.”
Today’s sentiment update for February via Ifo will provide more context for evaluating the outlook for macro risk. Based on the crowd’s guesstimate, more downside momentum is coming. Econoday.com’s consensus forecast sees Ifo’s trio of indices dipping once more. The expectations benchmark, for instance, is on track to slide below 102 for the first time since December 2014.
German manufacturing output increased at the slowest pace in more than a year.
Europe’s biggest economy is still expected to expand in the first quarter, but today’s Ifo report will serve as a reminder that Eurozone macro risk is on the rise again.
US: Consumer Confidence Index (1500 GMT) Yesterday’s big-picture review of US economic activity in January via the Chicago Fed confirmed that modest growth survived in the kick-off to 2016. The Chicago Fed’s benchmark of 85 indicators rebounded as the three-month moving average for the bank’s National Activity Index rose to a four-month high last month.
In short, recession risk remained low for the US through January, even though this year’s bearish slide in the stock market has suggested otherwise.
Today’s February update of the Consumer Confidence Index (CCI) will probably offer more support for expecting that the US macro trend will remain positive in the foreseeable future. Econoday.com’s consensus forecast calls for a slight dip in the Conference Board’s monthly measure of the mood on Main Street to: 97.2 vs. 98.1 in the previous report.
A mildly lower reading for CCI aligns with last week’s update of the University of Michigan’s Consumer Sentiment Index, which eased to a four-month low in February.
Are softer expectations in the consumer sector worrisome? No, at least not yet. Even if today’s CCI dips as projected the index will remain with the range we’ve seen for much of the past year.
Meanwhile, keep in mind that retail spending’s trend has perked up lately. Real retail sales increased 2.1% in January against the year-earlier level - the strongest annual gain since last September. That’s a signal for expecting that today’s CCI data will likely reaffirm the case for expecting that the consumer sector will remain a net plus for economic activity in the foreseeable future.
US: Existing Home Sales (1500 GMT) The monthly update on house purchases will provide another dimension for evaluating the consumer sector. Although this corner of the economy tumbled sharply in November, the year-end numbers dispatched a powerful rebound. Today’s January report will reveal if December’s bounce was noise or a sign that the housing recovery will endure in the new year.
Economists think we’ll see a slight setback with existing sales dipping to 5.30 million (seasonally adjusted annual rate) from 5.46 million in last year’s final month.
The estimate suggests that the appetite for residential real estate will remain at the low end of the range in recent months - excluding last November’s dramatic but temporary slide. A number that falls well below expectations, however, would raise new questions about the health of the housing market.
Note that last week’s February update of sentiment among home builders fell to a nine-month low. Although this benchmark is still pointing to growth, the latest decline is “reflecting consumers’ concerns about recent negative economic trends”, said NAHB’s chief economist. He adds that “the fundamentals are [still] in place for continued growth of the housing market”.
NAHB’s optimism faces a test in today’s update, which tracks the lion’s share of activity for housing transactions. A number that matches or exceeds the crowd’s estimate for 5.30 million is enough to ease worries that the housing market is stumbling.
Anything below that level, by contrast, will provide an excuse to wonder if this corner of the economy is stumbling just ahead of the spring buying season.
Disclosure: Originally published at Saxo Bank TradingFloor.com