EU Economic Sentiment, US ADP Jobs, US Q4 GDP

A busy day of economic news awaits, including an update on M4 money supply from the Bank of England (09:30 GMT) and the Federal Reserve's FOMC statement (19:15 GMT). At least three other reports today also deserve close attention: EU Economic Sentiment, US ADP Employment, and the initial estimate of US Q4 GDP.

EU Economic Sentiment (10:00 GMT) The mood in Europe seems to be improving, if only on the margins. Or is it simply not getting any worse? In any case, today's January update on the Economic Sentiment Indicator (ESI) from the European Commission will be closely watched for statistical signs of light at the end of the macro tunnel. The consensus outlook sees another modest round of improvement, which would build on December's gain that raised the broad Eurozone ESI to 87 — the highest since July (pdf).

It is a tenuous revival, however, for obvious reasons. Europe didn't fall into the cyclical ditch overnight, and it is going to take time to climb out of the hole. But after last week's improvements in two widely followed sentiment surveys in Germany — ZEW and Ifo — there's renewed hope that the worst of Europe's economic troubles may be easing. Nobody is expecting miracles, but the prospect of slow progress is starting to look plausible again.

Among the weak links, however, is the critical consumer sector. This slice of the broad ESI benchmark remains more or less stuck at depressed levels as of December. Yes, there was a slight uptick in the last report, but it will take many months of improvement to unleash a serious attitude adjustment. Nonetheless, something more than a token increase in this sector would be especially encouraging at this juncture. By contrast, another gain for the broad ESI without a commensurate rise in the consumer counterpart would signal that any recovery in the year ahead still faces plenty of headwinds.


US ADP Employment (13:15 GMT) Today's ADP preview of the official January payrolls report from the government (scheduled for release on Friday) is expected to show a slower rate of jobs growth. The 215,000 gain for December is projected to fall to a 175,000 increase for this month, according to the consensus outlook for the ADP update. That's still enough to keep the slow-growth trend for the US economy on track, but that level of deceleration won't inspire anyone to think that Friday's payrolls number is set to deliver a hefty upside surprise.

But let's not abandon this ship just yet. Keep in mind that the these two data series tend to track one another fairly closely through time. Any one month, by contrast, leaves plenty of room for random fluctuations and an ample supply of surprises. That said, if today's ADP number is at least higher than last month's Labor Department estimate of 168,000 in net private jobs growth, that bodes well for Friday. As the chart below reminds us, relatively wide spreads between these indicators do not persist. Accordingly, the higher the ADP guesstimate over last month's 168,000 number from the government, the greater my confidence for anticipating that the Labor Department's report on Friday will deliver a modest improvement over its previous release.


US Q4 GDP (13:30 GMT) The initial estimate of economic growth in the final three months of 2012 is expected to decelerate substantially, economists predict. The relatively robust 3.1 percent gain in Q3 will slide to a 1.0 percent pace in today's report, according to the consensus outlook. In that case, the market may have a tough time swallowing the data point. Indeed, a 1.0 percent GDP rise would rank as the weakest quarterly gain for the economy in two years.

My econometric modeling holds out the possibility for something better: I'm expecting a stronger number for Q4 GDP — roughly 2.0 percent. Nonetheless, the one thing that most analysts agree on is that the US economy probably hit a speed bump in the final three months of last year versus the previous quarter. The short list of culprits include Hurricane Sandy; a reversal of fortunes in the positive contribution from inventories, which was a big boost in Q3; and the fallout from all the dark chatter regarding the tortured fiscal cliff debate in Washington late last year.

Even if today's GDP number comes in near the lower range of estimates, that may be a misleading clue for framing this year's first-quarter outlook. December's economic news was generally upbeat, including a strong finish in the all-important housing sector. There's still a weak case for arguing that the economy is poised to break free of its slow-growth track, but today's quarterly rear-view mirror may be a poor guide at the moment for evaluating the first half of 2013.