EU Retail, US ADP Employment, US ISM Services

Wednesday is a busy day for economic news, starting with Services PMI updates for Germany and France, along with the second estimate of Q1 GDP for the Eurozone. In addition, keep an eye on three more numbers today: EU retail sales, followed by the ADP Employment Report and ISM Non-Manufacturing Index data for the US.

EU Retail Sales (09:00 GMT): Consumer spending in Europe continues to decline, but recent data holds out the possibility that the slide is stabilising. Even that small bit of optimism remains open for debate, but the Markit Eurozone Retail PMI data offer some support for thinking maybe, just maybe, the worst of the continent’s drought in consumption is over. The EU PMI number rose to an eight-month high in last week’s update for May. Although it’s still signaling contraction, the gain is the second in as many months.

The lagging retail sales numbers in today’s report from Eurostat aren’t likely to show much improvement, if any, but if the April consumption data doesn’t look too terrible there’ll be room for thinking positively for the May update. But that could still be asking for too much. As usual, the data for April retail sales in the leading economies has already been published. Consumption fell for both Germany and France, and so it’s probably a long shot that today’s EU data will provide any upside surprises. The Germany news was particularly disappointing, although some analysts said that the weather was to blame. Hope springs eternal, but it continues to walk on a razor’s edge.

That’s also a reminder that relativity still counts for a lot these days in the absence of stronger absolute numbers. On that note, today’s second estimate of first-quarter EU GDP—also released today at 09:00 GMT—may influence how the retail data is received in the market. Although the consensus view sees Q1 GDP holding at minus 0.2 percent, a lower number would all but remove any tolerance for disappointment for the retail update.


US ADP Employment Report (12:15 GMT): The last batch of economic news has been disappointing and so today’s ADP report—a preview of Friday’s official payrolls update from the government—will be closely analysed. Last Friday’s news that April’s personal income was flat while personal consumption expenditures slipped 0.2 percent reminded the crowd that America’s slow-growing economy remains vulnerable. That was also the warning in this week’s May release of the ISM Manufacturing Index, which reflected a slight contraction in overall output for the sector—the first dip into the red since last November.

If today’s ADP number is also weak, sentiment could take a hit as the market grapples with the third round of disappointing economic news. But economists think we’ll get a break today from the negative comparisons. The consensus forecast sees a substantial improvement in ADP’s estimate for jobs growth for May, delivering a considerably stronger monthly increase versus April’s weak gain. If that prediction holds, the news would at least keep the bears at bay for the day, although the real relief won’t come until (or if?) Friday’s labour market update from Washington confirms any good news in the ADP release.

US Non-Manufacturing ISM Index (14:00 GMT): The services industry is expected to provide some positive support today for the still-developing economic profile for May. And not a moment too soon. Depending on what we see in the ADP report that precedes this number, the crowd may be desperate for some good news on the macro front.

This survey from a broad cross section of industries outside of manufacturing is expected to satisfy. The consensus forecast calls for a modest rise in the ISM services benchmark versus April and thereby keeping the index well above the neutral 50 level. Another positive reading that reflects expansion in this sector won’t be a silver bullet for the bulls, but it’ll provide a strong counterpoint to the weak manufacturing data. Indeed, for all the attention lavished on manufacturing, the center of economic gravity resides in services. That’s the good news... assuming that the forecast for growth in this release holds up.