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Article / 27 May 2014 at 4:32 GMT

3 Numbers: French consumer confidence, US durable goods & home prices

editor/analyst /
United States
• French consumer sentiment could point towards a rocky summer
• Durable goods order likely to track higher as US industry gears up
• US house prices seen rising but at a marginally milder rate

Tuesday is a busy day of data releases after the long US holiday that marks the unofficial start of summer. In Europe, the market will look to the latest estimate of consumer confidence in France for deciding how the weak recovery in the Eurozone is faring. Later, two US reports will draw wide attention for guidance on projecting the macro trend for the rest of the year.

France: Consumer Confidence (06:45 GMT): Growth has returned to the Eurozone in recent months, but the recovery is wobbly and uncertainty is still quite high about what comes next. A key reason is the precarious trend in France, as last week’s business survey from Markit Economics reminds us. Private-sector output contracted in May for the first time in three months, according to the Markit Flash France Composite Purchasing Managers Index (PMI). “With GDP having stagnated in Q1, the PMI data so far suggest another disappointing performance in the second quarter,” said the Markit economist who oversees the data. “With new orders and employment both falling at sharper rates in the latest month, the malaise looks set to persist, dashing hopes of any convincing recovery taking hold.”


Will French consumers ditch the blues or will the malaise persist?  Photo: Wanlorn / iStock

That’s a harsh outlook for Europe’s second-largest economy. Is it overly pessimistic? Today’s update on consumer confidence in France for May will shed a bit more light on deciding if there’s a new round of macro deterioration bubbling. It’s hardly reassuring that confidence dropped sharply in April after mounting a healthy rise in the previous month—a bout of weakness that seems to have spilled over into May, according to the PMI numbers. The hard data more or less confirmed the PMI trend: France’s GDP in this year’s first quarter was unchanged after showing mild growth of 0.2 percent in last year’s final quarter.

The good news is that the latest weakness in France seems to have had limited impact on the broad trend for Europe overall so far. The flash estimate of the Eurozone PMI Composite Index for May, although it slipped a bit, remained well above the neutral 50 mark and continued to signal a modest pace of economic growth. Depending on what we see in today’s consumer survey data, however, the headwinds blowing from France may set the stage for a rocky summer of economic news.


                                                                                                                                                                                                     US: Durable Goods Orders (12:30 GMT): A broad review of the economic data continues to suggest that a spring recovery is underway, but there are still areas of weakness that may keep growth from accelerating beyond the modest pace of expansion in recent history. Retail sales in April were surprisingly soft. Meantime, the housing data has been sending mixed signals. With a fair amount of uncertainty still lingering about the economy’s capacity for growth, today’s update on durable goods orders will draw close attention as analysts look for new clues about what to expect in the remainder of the year.

Recent reports have been encouraging, which suggests that demand for durable goods is picking up after a run of winter declines. The broad-based advance in March boosted new orders by 2.6 percent over the previous month, raising the year-over-year change to more than 10 percent—the best annual comparison since last November. Another encouraging signal is the stronger increase in business investment in the last update, which implies that corporate America is preparing to ramp up production activity. New orders for non-defence goods ex-aircraft jumped 2.9 percent in March vs. the previous month and is up 6.0 percent vs. a year ago.

One reason for thinking that the momentum in the industrial sector of the economy is poised for stronger growth can be found in the latest business survey data for May. This month’s flash estimate of Markit’s US Manufacturing PMI inched higher, reflecting the fastest rate of growth in more than three years. It’ll be useful to see if today’s report on demand provides additional support for the brightening mood in the industrial sector. Unfortunately, economists are projecting a slight dip for April, with new orders slipping 0.8 percent vs. the previous month.

Nonetheless, the PMI manufacturing data for May suggest that any weakness in today's new orders report may be short-lived. Last week's flash estimate "provides further confirmation that industry will aid a rebound in US GDP in the second quarter, and other indicators from the survey suggest that the sector has plenty of momentum heading into the summer and beyond," according to Markit economist Paul Smith.

US: S&P Case-Shiller Home Price Index (13:00 GMT): It’s been clear for some time that the US housing market has run into some turbulence in 2014. But the market may be stabilising, as suggested in the mild upturn in existing home sales for April—the first rise so far this year.  “We think the recent slump in home sales may now be in the past," an economist at J.P. Morgan Chase said last week. The sharp rebound in new residential construction last month offers some support for this view.

The rate of increase for home prices has been leveling off lately, but a relatively stable, moderate run of rising values would be welcome if the sector is still poised for growth. Today’s March report on home prices will provide some timely context for deciding if this crucial sector is in fact headed for a smoother if slower run of growth.

That’s a reasonable outlook, based on the latest numbers for the pending home sales index, which is considered a leading indicator of sales. “After a dismal winter, more buyers got an opportunity to look at homes last month and are beginning to make contract offers,” said the chief economist at the National Association of Realtors, the group that publishes the data. “Sales activity is expected to steadily pick up as more inventory reaches the market, and from ongoing job creation in the economy.”

As for today's report on prices, economists think the rate of increase continue to ease. The unadjusted year-over-year pace for the 20-city index is projected to rise 11.9 percent for the year through March, according to the consensus forecast. That's softer than the 12.9 percent increase in the previous update, but a slower rate is stil welcome at this stage to promote sales and keep the recovery in housing moving forward.


— Edited by Clare MacCarthy


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