Article / 24 May 2016 at 5:02 GMT

3 Numbers: German economy looks back on track

editor/analyst /
United States
  • Economists expect the German financial sector sentiment to tick higher in May
  • US new home sales should show a rise in April – the first increase this year
  • Weak US manufacturing data for May could continue with the Richmond Fed Index

By James Picerno

Tuesday’s a busy data for economic news, including the May update of the ZEW Economic Sentiment Indicators. Later, two US reports will be widely read for clues about the macro trend in the second quarter: New home sales and the Richmond Fed’s regional index of manufacturing activity.  

Germany: ZEW Economic Sentiment Indicators (0900 GMT):
Economic activity accelerated in Europe’s biggest economy in May, according to yesterday’s survey data from Markit Economics.

The firm’s composite purchasing managers’ index for Germany ticked up to 54.7 in this month’s flash estimate – a five-month high and the first improvement so for in 2016.

The PMI data is encouraging, but a closer look at the underlying figures still leaves room for caution. “There was evidence that some companies raised activity levels in order to process backlogged work, rather than as a result of rising new business,” a Markit economist noted.

 Return to confidence? New orders in Germany are continuing to increase. Photo: IStock

“Although new order intakes continued to increase, the rate of growth was the weakest in ten months, with occasional mentions from panelists of an increasingly challenging demand environment.”

Today’s monthly update of sentiment in Germany’s financial sector will provide more context for assessing the May macro profile. The last two reports reveal a modest rebound in expectations, but the firmer outlook for the future was accompanied by an ongoing slide in the current reading of economic conditions.

“The continued poor growth in China and other important emerging markets continues to be a burden for the German export industry,” said the head of ZEW’s research department.

Today’s numbers for May, however, are on track to tick higher. Notably, the current expectations data is expected to post its first monthly gain this year, according to’s consensus forecast.

Meantime, the expectations index is projected to rise for the third straight month. If the forecasts are right, today’s ZEW report, combined with the latest PMI data, will support the view that Germany’s economic activity is picking up at the mid-point in the second quarter.

US: New Home Sales (1400 GMT) The housing market is “getting stronger” The Wall Street Journal advised a few days ago. The combination of job growth and low interest rates have dispensed a bullish edge for the housing market so far this year. Some indicators have been choppy at times, but sentiment in the home building industry remains upbeat.

Last week’s numbers on existing home sales look promising too. Transactions edged higher in April for the third month in a row, sticking close to the highest level since the recession ended.

Today’s update on newly built houses is expected to bring good news as well. The crowd’s looking for a gain that will push sales up to 523,000 for April (seasonally adjusted annual rate) via's estimate.

If accurate, new purchases will post the first monthly increase for the year so far and raise the number of transactions to a level that's close to a post-recession high.  An increase in today’s report will also boost confidence that the US economy is rebounding in the second quarter after a near-flat performance in Q1, based on GDP.

Although existing sales represent a much larger slice of housing transactions, purchases of new homes are considered a stronger source of growth for the economy.

To the extent that the crowd is worried about the US macro trend, the stakes may be higher in today’s sales data compared with last week’s numbers on transactions for existing homes.

US: Richmond Fed Manufacturing Index (1400 GMT) The housing sector may be showing signs of firming, but manufacturing seems to be slipping back into contraction in Q2.

Output in US manufacturing in May fell for the first time since 2009, according to Markit’s flash PMI data. “A number of monitored firms mentioned that uncertainty around the general economic outlook had caused clients to delay spending decisions, which in turn prompted firms to trim their production schedules,” the consultancy advised in yesterday’s update.

Two regional manufacturing indices from Fed banks also point to a weaker trend in May. The New York and Philly Fed benchmarks posted negative readings for this month, the first time that both indices were in the red for the same month since February.

Today’s update from the Richmond Fed will provide another data point for assessing this month’s manufacturing activity.

Note that recent numbers for this regional benchmark have been the strongest among the indices published by Fed banks recently. If this index tumbles today, the sight of a third round of red ink in regional manufacturing activity will underline the view that the sector is struggling in the second quarter.

-- Edited by Adam Courtenay

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


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