Article / 13 January 2015 at 17:43 GMT

3 Numbers: Eurozone industry output stagnant, US mortgages, US retail

editor/analyst /
United States
  • Eurozone industrial output in November probably weakened
  • The US mortgage update will show whether housing weakness will turn around
  • US retail spending expected to decline in December, but outlook remains bright

By James Picerno

Deflation risks in the Eurozone will be in focus again today with the monthly update on industrial output for the countries that share the euro. Later, a couple of US releases will draw attention as the market looks for new signals on the macro trend at a time when disinflation pressure is blowing harder around the world. First, the weekly update on US mortgage applications will provide new perspective on the property market, which has been soft lately. Later, the monthly data on retail sales will dominate today's news cycle for the US.

EU: Industrial Production (10:00 GMT) The ongoing worries about deflation risk for the Eurozone will be front and centre again with the monthly update on industrial output. The trend in recent months in industrial activity reflects stagnation rather than outright deflation, although the distinction may be lost at a time of heightened uncertainty linked to a range of issues.

 Early buying binge ... US retail sales for December dipped slightly, so healthy November sales would explain why overall holiday season figures were strong. Photo: Thinkstock

For instance, the EU Court of Justice will today issue a preliminary opinion on the legality of the European Central Bank’s ability to conduct quantitative easing (buying sovereign bonds). Although a number of legal analysts think that the court will stop well short of condemning the ECB’s ability to engage in QE, virtually everyone agrees that a negative opinion would raise doubts about the central bank’s capacity for rolling out a new phase of monetary stimulus.

Meanwhile, the potential for a Grexit — Greece’s exit from the currency union — lurks in the parliamentary elections scheduled for January 25. The market’s implied odds for a Grexit appear to be low at the moment, based on the absence of a yield spike in Greek debt. Nonetheless, the possibility of a Grexit can’t be ruled out entirely until it’s clear how the election changes the political calculus in Athens.

Then there’s the ongoing deflation risk in the real economy to consider. Today’s report on industrial production for November will be widely read for fresh perspective. The year-over-year trend in output has been mildly positive lately, posting a 0.7% advance in October versus the year-earlier level, according to Eurostat. Looking at November’s business survey data for manufacturers, however, suggests that today’s release will deliver a softer set of numbers.

As usual, the industrial numbers for the main Eurozone economies have already been published and the data here also points to a weaker comparison for Europe overall. Among the big-four economies, only Spain posted a year-over-year increase in November, Eurostat figures show.

Bottom line: Today's Eurozone data for industrial output looks set to fan the flames of worry.


US: Weekly Mortgage Applications (12:00 GMT, today) The residential real estate market remains a weak spot in an otherwise improving economy for the US. New housing construction activity and sales of existing homes have been sluggish lately, in contrast with the acceleration in growth in payrolls. Is the weak housing market a sign that the economic outlook isn’t as bullish as the employment data implies?

The optimistic view is that an improving labour market will soon translate into a stronger phase of growth for housing. As the number of employed workers increases, the demand for housing will follow. That, at least, is the theory, but recent data from the property sector has yet to confirm this forecast.

The lack of stronger growth in housing is somewhat perplexing given the persistence of low mortgage rates, which is usually a stimulus for the sector. The national average for a 30-year fixed mortgage has been winding lower for more than a year, dipping below 3.90% in recent weeks.

The dramatic 11.1% surge in new mortgage applications for the week through January may be a signal that better days are coming for real estate. Or was that merely noise for an otherwise sluggish trend? Today's update may provide a clue for deciding what to expect in the new year for housing.


US: Retail Sales (13:30 GMT) Economists think that retail sales for December will post a mild decline, falling 0.1%, according to’s consensus forecast. But if there’s a year-end setback lurking in today’s update, it’s not obvious when looking at recent holiday sales data. Retailers had their best Christmas sales period in a decade, according to data from the Retail Metrics Index, the FT reports. 

Same-store sales rose 5.0% during the nine weeks of November and December, driven by an improving labour market and falling energy costs, a de facto tax cut that provides consumers with more disposable income. Based on the consensus forecast, however, it appears that the bulk of the spending increase came during November, or so one could reason.

Today’s monthly release from Washington will help sort out the details. Meantime, let’s not go off the deep end with the monthly comparison. The more reliable year-over-year gauge of consumer spending clearly shows improvement in the second half of 2014. The 5.1% annual increase in headline retail sales through last month was the best gain since the summer of 2013.

Even if the consensus forecast is right and retail spending dips slightly in December, the annual rise will remain at a relatively strong 4.9%. Meantime, with energy prices still trending lower and payrolls rising at a faster rate, the outlook for higher spending on Main Street looks encouraging (even if the monthly comparison suggests otherwise).


-- Edited by Oliver Morrison

James Picerno is a macro analyst at Capital Spectator. Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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