The first business day of March roars like a lion in terms of data releases. Keeping on top of all the fresh numbers will be a challenge today. The data deluge includes several key Eurozone updates: the flash estimate of consumer price inflation for February and new figures on unemployment for January. The main event for the US is the personal income and spending release for January that’s due at 13:30 GMT, but today’s February update on the ISM Manufacturing Index will offer a more timely review of the macro trend.
EU: Consumer Price Index (10:00 GMT) The Eurozone economy continues to show signs of improvement on the margins, but the nascent signs of progress may not show up in today’s flash estimate of consumer price inflation (CPI) for February. Indeed, deflation will likely continue to dominate the year-on-year comparison for headline inflation, although the core reading will reflect relative stability with a modest rise against the year-earlier level. But inflation numbers aren’t particularly useful at this point for deciding if Europe’s economy is transitioning from flat to negative output to something just north of zero overall.
Instead, consider Friday’s release of the Euro-coin Indicator for February via the Bank of Italy. This proxy for Eurozone GDP increased last month for the third time in a row, projecting a modestly higher round of economic activity. In fact, this benchmark is current posting its highest reading since last July.
Now-Casting.com’s latest real-time GDP estimate continues to inch higher too. The latest estimate for this year's first quarter GDP, for instance, equates with quarter-on-quarter growth of nearly 0.4%, which reflects a slight improvement over last year’s Q4 gain of 0.3%.
It’s still a weak recovery - yes, it’s okay to use that label, or so recent data tells us. The key hazard is that the revival doesn’t last. What could derail the rebound? Ah, where does one begin in the tortured realm of Eurozone economics?
Only time will tell if the revival will roll on in the quarters to come. But for the moment, the incoming data looks encouraging, more so than we’ve seen in nearly a year. Today’s headline inflation data may suggest otherwise, but the deflationary winds will start to ease in the months ahead, according to the Euro-coin benchmark and similar metrics.
EU: Unemployment (10:00 GMT) Today’s update on Europe’s jobless rate will continue to paint a dark picture for the labor market, but here too it’s wise not to be caught up in the backward-looking nature of this indicator. As noted above, there appears to be a mild tailwind blowing for Europe's broad trend and so the January release on unemployment may send an out-of-date signal.
By contrast, the latest business survey data from Markit Economics shows encouraging progress in economic activity through February. The firm’s Composite Output Index, which is considered a proxy for official GDP data, rose to 53.5 last month, a seven-month high. Even better, the forward-looking components of the index look upbeat, implying that we’ll see positive momentum in the months to come. “The new orders-to-inventory ratio in manufacturing hit a seven-month peak,” Markit noted - a rise that suggests that factories "will step up production to ensure orders can be fulfilled”.
Keep in mind that that the European Central Bank’s muscular effort at quantitative easing begins this month. A robust effort at monetary stimulus should have arrived years ago, although the launch of QE turns out to be timely now that the macro trend seems to be picking up. Expectations are low for what QE can achieve, but whatever growth-inducing force is unleashed will have a stronger influence with the economic trend moving forward.
“All in all, the outlook is more positive than it was a few months ago,” ECB President Mario Draghi said last week. That may not be obvious in today’s unemployment numbers, but at this point the change in the directional trend is the critical issue against a snapshot of the recent past. As long as the forward-looking metrics brighten, it’s reasonable to assume that the lagging numbers, including today’s jobless update, will follow.
US: ISM Manufacturing Index (15:00 GMT) Growth may not be as strong as previously thought, but the expansion remains on solid ground. True, fourth-quarter GDP was revised down to a modest 2.2% from 2.6% in the initial estimate. But the lesser rate of growth follows Q3’s impressive 5% rise. “The trend is probably somewhere in the middle—at least 3%,” the chief US economist at High Frequency Economics wrote on Friday.
Today’s widely followed ISM report on manufacturing output for February will likely reaffirm that the foundation for growth is intact. As usual, we have Markit’s previously released survey numbers to consider as guidance for anticipating the ISM release. Fortunately, the early clues look promising.
The flash February estimate of the purchasing managers index (PMI) for manufacturers ticked higher, including another rise for new orders. Hiring was a bit softer, but overall the outlook remains upbeat. The rise in output suggests that “the goods-producing sector is on course to make a robust contribution to the economy in the first quarter,” advised Chris Williamson, Markit’s chief economist, in last month’s report.
Today’s ISM update (along with revised PMI data published at 14:45 GMT) is expected to support Williamson’s analysis. The consensus forecast calls for a slight easing in the ISM data for February - 53.0 against 53.5 in January, according to Briefing.com. But that's still comfortably above the neutral 50.0 mark. The pace has cooled a bit relative to recent history, but today's numbers are on track to reaffirm that the positive momentum remains intact.
Disclosure: Originally published at Saxo Bank TradingFloor.com