Wednesday's FOMC outing showed the Powell Fed to be less model-driven than its predecessors, but the lack of any language confirming four 2018 rate hikes sent the dollar plunging lower.
Article / 20 May 2014 at 5:11 GMT

3 Numbers: Italian factory orders, UK inflation, US retail sales

editor/analyst /
United States

• Italian economy set for factory orders boost
• Soft CPI would make BoE hold its fire
• US retail sales likely to stay on track

A leading indicator of Italy’s economy is updated today: new industrial orders, which have been rising moderately on a year-over-year basis lately.  Later, the UK publishes its monthly consumer-price inflation data. We’ll also see fresh numbers on the retail front for the US via the weekly release of chain store sales. 
italy factory

Modest growth in Italian industrial orders is encouraging. Photo: Claudio Ventrella / iStock

Italy: New Industrial Orders (09.00 GMT): The year-over-year trend in new factory orders has been a bright spot for the Italian economy lately. Although the monthly numbers have been unusually volatile, a modest growth trend is evident in the annual data. 

Italy’s economy is still struggling but the potential for improvement in the months ahead for the industrial sector can’t be ruled out. Business survey data for manufacturing certainly look encouraging these days. Markit’s purchasing managers index (PMI) for manufacturing in Europe’s third-largest economy has turned higher lately, rising to 54.0 last month — the highest since 2011 and comfortably above the neutral 50 mark. Markit’s survey numbers also show that job creation in the sector is improving.

“The manufacturing sector enjoyed another strong month of growth in April, buoyed by continued success in export markets,” advised the Markit economist who oversees the Italian PMI data set. “What is more, the upturn moved up a gear as growth rates of output, new orders, and purchasing activity all reached three-year highs.”

Today’s hard data on new orders will serve as a reality check on the upbeat mood that’s reflected in recent PMI reports. Considering that the year-over-year comparisons for new orders have been consistently positive since last September, it’s reasonable to assume that growth with the annual comparison will persist in today’s release. 


 Source: Istat

UK Consumer Price Index (09.30 GMT)Bank of England (BoE) governor Mark Carney emphasised last week that “interest rates are likely to remain low relative to historic levels for some time”. In a press conference after the release of the bank’s quarterly inflation report, he explained that “the exact timing of the first adjustment of Bank Rate will be a product of the evolution of the economy”.

One reason why the BoE is in no rush to change monetary policy and begin tightening: the recent decline in inflation. Today’s update on consumer prices isn’t likely to conflict with that trend. In every inflation release since last October, the annual pace of headline consumer inflation has eased, falling to 1.6 percent for the year through March. In fact, the ongoing slide, although modest, is starting to raise concerns that the disinflationary trend may be a precursor to deflation. In any case, inflation in Britain is conspicuously non-threatening these days, from the central bank's perspective.

Well, mostly non-threatening. Housing prices are rising sharply and the bull market in the residential property market has coincided with a conspicuous rise in mortgage-related debt. The surge in borrowing has caught the attention of Carney, who told Sky News last week: “We’d be concerned if there was a rapid increase in high loan-to-value mortgages across the banks. We’ve seen that creeping up and it’s something we’re watching closely.”

But for now, Carney is reluctant to use the BoE’s policy rate to slow the housing market. That’s a luxury he can still afford, as long as the CPI trend remains soft.


 Source: UK Office for National Statistics

US Chain Store Sales (12.45 GMT)Retail sales in April fell well short of expectations, rising just 0.1 percent over the previous month vs. the 0.4 percent advance that the market was anticipating. But the year-over-year growth rate remained steady at four percent, matching the pace in the previous release. The implication: the soft monthly data is noise. 

That’s also the message in recent year-over-year numbers for chain store sales. Last week’s release showed that spending jumped 3.9 percent vs. the year earlier level. That’s the biggest annual gain since June 2013 for the International Council of Shopping Centers (ICSC) Weekly Chain Store Sales Index. “Temperatures turned milder in some parts of the country which helped drive seasonal demand — especially in the South and ahead of Mother’s Day,” said ICSC’s chief economist.

Is there more to the strong ICSC numbers than a short-term burst of spending? There’s a fair amount of scepticism, in part because of the weak monthly data from the government. But some economists are confident that stronger spending levels are coming. "The consumers are catching their breath after a rebound from the winter freeze, but we do remain on track to see stronger consumer spending ... through the remainder of this year,” Comerica’s chief economist predicted last week. In that case, we should see some support for that rosy outlook in today’s weekly numbers for chain store sales.


 Source: Int'l Council of Shopping Centers/ Goldman Sachs

— Edited by Kevin McIndoe

James Picerno is a freelance journalist and analyst who specialises in macroeconomics and investment strategy. See more of his exclusive content for our social trading community here.


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