EU Services PMI, UK Services PMI, US ADP jobs

The markets will have another chance on Wednesday to stress test the view that the UK economy is on a sustainable road to recovery with today’s update on the Markit/CIPS Services PMI data. Later, attention turns to the release of Eurozone retail sales for May and the June ADP employment report for the US.

UK Markit/CIPS Services PMI (08:28 GMT): Britain is on a roll, or at least that’s the trend in recent economic numbers. Yesterday’s news of another rise in the Markit/CIPS UK Construction PMI is the latest example. “UK construction companies indicated a further moderate rise in business activity during June,” the press release observed. This wouldn’t mean much if it were an outlier, but the return to growth for the construction sector falls in line with a series of similar updates from other economic corners in recent weeks. Another example: business confidence in Britain is now the highest since 2007, driven in part by rapidly rising UK exports, according to a report published yesterday by the British Chambers of Commerce.

Today’s update on the mood in the services sector isn’t expected to deliver a stellar performance, although analysts think we’ll see this PMI number remain well above 50. In other words, Britain’s services sector is on track to provide more positive support for the economic recovery that’s becoming more conspicuous with each new data point these days. The revival is a bit ironic, considering the formal arrival this week of Mark Carney as head of the Bank of England. Recall that in April Carney described the UK as a “crisis country.” By that standard, Britain has mounted a marked if still-unspectacular recovery in just a few short months.

EU Retail Sales (09:00 GMT): In ever sharper contrast with Britain's macro profile, Europe is still stuck in recession and that's not likely to change in the next round of economic releases. The good news is that there’s a lively debate about the possibility of stabilisation and, eventually, recovery. Major turning points for the business cycle are only obvious with hindsight, but today’s retail sales update for the Eurozone may stoke discussions about whether there’s light at the end of this tunnel in the near term.

Using the last two monthly retail PMI reports as a guide, today’s number for May retail spending for Europe could bring upbeat news. Exactly how upbeat is only a guess at this point, but it’s hard to imagine that two consecutive months of improving sentiment in the retail sector is meaningless for the hard data. True, the PMI numbers are still under 50, which indicates contraction. But the rise in the June PMI to nearly a neutral level suggests that consumer spending will recover, if only modestly. Today’s retail sales report for May should at least tread water relative to the April data, although it wouldn’t be surprising should we see a bit of growth in the monthly comparison.

US ADP Employment Report (12:15 GMT): The market will be eager to see today’s ADP estimate of private payrolls for June. As usual, this data will guide expectations for Friday’s official jobs report from the government. Recent updates from both series suggest that the bias for moderate growth remains intact. Although the monthly numbers bounce around a lot, both ADP and government private payrolls have been rising at a comparatively steady annual rate of between 1.5 percent and two percent so far this year. There’s nothing in the economic news of late that suggests we’ll see anything different in today’s release

In the May report, ADP said that private payrolls expanded by a net 135,000 versus the previous month. The consensus forecast sees today’s estimate for June improving a bit to a 165,000 advance. June macro numbers overall are still largely a mystery, but an early look at the economic profile for last month via the ISM Manufacturing Index looked decent, albeit only moderately so. If today’s ADP report tells us something similar, the odds will improve for expecting another round of modest growth in Friday’s jobs report.