Eurozone Retail Malaise, US Jobs Report, ISM Services Index

Wednesday is a busy day of economic releases, including the monthly report on retail spending for the Eurozone. Later, two US updates will be closely watched for evaluating the November macro profile – the ADP Employment Report and the ISM Non-Manufacturing Index.

Eurozone Retail Sales (10:00 GMT) Yesterday’s weaker-than-expected update on industrial prices in Europe is a reminder that economic stagnation will probably endure for the foreseeable future. Economists projected a slight rise for October’s producer prices and instead were greeted with a mild retreat. Consumer inflation is at least positive, but just barely, and it continues to inch closer to zero.

If today's ADP data shows strong private-sector workforce growth for the US in November, a favourable figure for Friday’s official data will look more likely. Photo: Thinkstock

Not surprisingly, the outlook for fourth-quarter GDP in the Eurozone is more or less flat, according to the latest estimates via the Bank of Italy’s Euro-coin forecast and Now-Casting.com’s current estimate. Meantime, the OECD recently predicted that “growth will remain weak because of still-high public and private debt, tight credit conditions and high unemployment.” In short, more of the same.

So deciding whether there’s any reason to dial down the gloomy outlook, if only slightly, relies on incoming data, starting with today’s release on October retail sales for the countries that use the euro. Using the September report as a guide, it’s still easy to remain pessimistic: spending slumped a hefty 1.3% in real terms compared with the previous month. The burst of deflation dragged down the year-on-year comparison to its slowest gain since May: a slim 0.6% rise.

Today’s update could bring some relief, according to the latest retail business survey data. Markit’s purchasing managers index (PMI) for October advised that the rate of decline eased for Eurozone retail spending. “The retail PMI rose from September’s low, but nevertheless pointed to continuing weakness in consumer spending in the euro area,” noted the Markit economist who oversees the release. “In another sign of weak demand driving disinflationary forces in the bloc, the retail surveys showed lower sales leading to cuts in retailers’ buying levels and, consequently, historically low rates of wholesale price inflation.”

Nonetheless, the retail PMI figures hold out hope that September’s stark decline in the hard data on consumer spending won’t extend into October. Even so, it’s fair to say that economic malaise remains the best-case outlook at the moment.


US: ADP Employment Report (13:15 GMT) The global economy is looking a bit wobbly these days. Global manufacturing, for instance, grew at its slowest pace in more than a year in November, according to this week’s update of the JP Morgan Global Manufacturing Purchasing Managers Index.

It’s likely that the US will feel some of the global pain, but when is that likely to take place? So far, the blowback has been minimal. The immunity’s expected to roll on in today’s report on private payrolls for November. The consensus forecast sees the private-sector workforce growing by 225,000 last month, a touch below October’s advance, according to Econoday.com.

If the prediction holds, the US labour market will post its strongest three-month increase through November since this year’s May-to-July period, based on ADP's data set. Another 200,000-plus gain for private payrolls will strengthen the case for expecting that Friday’s official jobs data from Washington will also compare favourably with recent history.

Soft US inflation

Assuming no disappointments in this week’s employment reports, the market will have fresh evidence for projecting that the Federal Reserve is still on track to begin raising interest rates next year. The joker in the pack is the relatively softer pace of inflation these days. Earlier this week, the Treasury market’s implied inflation forecast fell below 1.8% for the first time since 2011, based on the yield spread for the nominal 10-year Note less its inflation-indexed counterpart. If inflation continues to sink, the central bank may be inclined (or forced?) to let its near-zero policy rate endure for longer than expected.

“If inflation is really heading south we will have to [delay raising rates],” Fed Vice Chairman Stanley Fischer explained at a conference yesterday. But if today’s ADP data looks encouraging, the odds will improve for expecting that the inflation outlook will stabilize, if not inch higher.



US: ISM Non-Manufacturing Index (15:00 GMT) Growth in the services sector in the US has been decelerating at a brisk pace in recent months. In fact, business survey data published by Markit Economics and the Institute for Supply Management have been dispensing virtually identical messages on this score through their respective benchmarks.

But economists think that the slower rate of growth will stabilize in today’s ISM report. The consensus view sees the non-manufacturing index inching higher to 57.3 for November versus 57.1 in the previous month. In other words, the market’s expecting that ISM data will reflect another solid month of expansion.

If so, the ISM figures will conflict to a degree not seen lately relative to the flash estimate for Markit’s competing services PMI for November, which is scheduled to be revised in today’s update at 14:45 GMT. Indeed, November’s preliminary estimate of the services PMI dipped for the fifth month in a row to 56.3.

Don’t misunderstand this point: the outlook for services remains upbeat, even by Markit’s comparatively softer estimate. In any case, we’ll have a clearer view of how this critical corner of the economy is faring as the year comes to a close.



Disclosure: To subscribe to the Daily Shot letter by e-mail please enter your e-mail address here: Subscribe to the Daily Shot