Thursday’s a busy day for economic news. In addition to the European Central Bank announcement due out today, keep your eye on three key updates: Eurozone retail sales for October, US factory orders for October, and the November release of the US ISM Non-Manufacturing Index.
Eurozone: Retail Sales (1000 GMT): The trend for consumer spending has ticked higher lately, based on year-over-year changes, but the sentiment data hints at a slowdown for the fourth quarter.
Markit’s PMI for Europe’s retail sector ticked lower in October, slipping to 51.3 versus 51.9 in September. There’s still a modest run of growth in the PMI updates, but the uptrend appears to be fading. The weakness is due to the usual suspects. “Germany remained a mainstay of growth, while France and Italy’s fortunes were reversed from the previous month, as the former recorded its first rise in sales since July and the latter saw a renewed decline,” noted a Markit economist last month.
The weaker growth via October’s PMI suggests that today’s hard data for retail spending for the Eurozone will ease in the fourth quarter’s first month. That's one reason economists overall are looking for a lower level of annual growth.
Econoday.com’s consensus forecast sees retail spending in the currency bloc dipping to 2.5% from 2.9% in September. If the prediction holds, the European Central Bank will have one more piece of macro data to cite for rolling out additional monetary stimulus in the policy announcement (1245 GMT) and press conference (1330 GMT) scheduled to follow today's retail sales report.
US: Factory Orders (1500 GMT): The crowd’s looking for a rebound in factory orders for October – a bit of optimism that, if accurate, will mark the first monthly increase since July.
Econoday.com’s consensus forecast sees orders rising a respectable 1.4% at the start of the fourth quarter. That’s a modest advance, but any degree of growth will be welcome in this corner, where contraction has prevailed for much of 2015.
Even if the upbeat forecast holds up, the expected gain still leaves orders in the red for the year-over-year trend. That’s hardly a surprise at this point. The manufacturing sector has been struggling for months, as this week’s unexpected slide in the ISM Manufacturing Index for November reminds us. The widely followed benchmark fell to its lowest level in six years, which marks a return to contractionary territory for the sector.
“A strong dollar just puts us at a disadvantage,” noted the chairman of the Business Roundtable. The disadvantage looks set to keep the pressure on manufacturing for the near term, as today’s update on factory orders will probably show.
The good news is that manufacturing weakness is only a minor problem for the US economy overall ... so far. Indeed, yesterday’s ADP Employment Report for November paints a modestly stronger rate of job growth in the private sector … no thanks to manufacturing.
"The strongest gains in the service sector since June led to greater employment growth in November,” said the head of the ADP Research Institute. “The increase was driven in large part by a rebound in professional/business service jobs.”
US: ISM Non-Manufacturing Index (1500 GMT): It’s debatable if the services sector alone can carry the US economy and keep the business cycle on a positive trend. Nonetheless, today’s November update of the ISM Non-Manufacturing Index is on track to reaffirm that robust growth is still alive and kicking in services overall.
Briefing.com’s consensus outlook calls for a mild pullback in ISM’s headline benchmark to 58.3 for last month’s reading versus 59.1 in October. But that still leaves the index close to a post-recession high and well above the neutral 50.0 mark.
Markit’s PMI data for services also reflects an upbeat trend. The flash numbers for November, (due for an update today at 1445 GMT) increased to 56.5. The improvement reflects the best pace of growth since April.
Overall, today’s two updates for the services sector are on track to deliver more good news, which is no trivial point, given the weakness in manufacturing. It’s anyone’s guess how long the divergence between these two slices of the economy can continue. But for now, the services sector is on track to offset manufacturing’s sluggish trend and keep US growth in the positive column.
Disclosure: Originally published at Saxo Bank TradingFloor.com