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 / 07 May 2014 at 5:32 GMT

3 Numbers To Watch: German orders, French output, Eurozone retail PMI

editor/analyst /
United States

• German industrial orders will be a reality test of Brussels' optimism
• French industrial production seen rising 0.5% year-on-year
• Soft Eurozone retail PMI would dent confidence in recovery

Wednesday is a slow day for economic releases in the US but Europe will be buzzing with fresh macro numbers, starting with a report on new industrial orders for Germany. Later, we’ll see new reports on industrial production for France and an early peek at April's consumer spending in Europe via Markit’s Retail Purchasing Managers Index (PMI). 

German ind. orders
Today's German factory orders will test optimism about Eurozone recovery. Photo: Alexander Hassenstein

Germany New Industrial Orders (06.00 GMT)The European Commission (EC) is forecasting that Germany’s “economic growth is expected to accelerate, powered by domestic demand”. In last week’s release of its Spring 2014 Forecast, the EC anticipated that year-over-year GDP growth for Europe’s biggest economy will rise to 1.8 percent for all of 2014 and 2.0 percent in 2015 — well above last year’s tepid 0.4 percent gain. Business investment is expected to be a key factor in the rising tide. According to the EC’s outlook, “an upward trend in domestic capital goods orders and a continued rise in firms' investment plans amid dissipating uncertainty and favourable financing conditions suggest a further pick-up in equipment investment.”

Today’s update on factory orders for March will offer a reality check on the EC’s rosy predictions. For the moment, the numbers previously published by the Bundesbank offer mixed support. The monthly changes in new orders have been stable recently, ranging from flat to small increases. The lack of convincing increases suggests caution. But the annual changes for new factory orders looks better via growth rates of 5 percent-plus since last November.

Sentiment in the business community looks encouraging too when it comes to looking ahead, according to the April update of the Ifo Business Climate Index. “Although manufacturers fractionally scaled back their very good
assessments of the current business situation, they were far more optimistic about their business outlook,” the Ifo Institute wrote.

Today’s update on new orders will tell us if the hard data is set to play along with the case for optimism.



France Industrial Production (06.45 GMT)The tepid recovery in France is hanging on by a slim margin, according to the latest business surveys from Markit Economics but the risk of trouble seems to be lurking just below the surface for Europe’s second-largest economy. Although the PMI numbers for both the manufacturing and services sectors remain above the neutral 50 mark, the recent data doesn’t provide much comfort for assuming that growth will persist, much less accelerate. On both fronts, the April PMI levels slipped close to a neutral level. The overall trend is reflected in the Markit France Composite Output Index, which dipped to a two-month low of 50.6, which is close to flat in terms of economic activity.

Meanwhile, the hard data presents a mixed view via the year-over-year trend for industrial production, which posted its first decline in four months in February, falling 0.8 percent. But the cyclically sensitive manufacturing component was surprisingly strong in the last update, with output from this corner climbing 1.2 percent for the year through February. Insee, the government’s statistics bureau, said that manufacturing of transport equipment was especially strong. But transportation is notoriously volatile and so it’s unclear if we’ll see a repeat performance in today’s numbers.

Nonetheless, the March PMI data for manufacturing turned higher, only to give back some of the gains in April. But today’s release focuses on March and so it’s not surprising that analysts think we’ll see some improvement in the industrial production numbers. The consensus forecast anticipates a year-on-year rise of 0.5 percent. That’s an encouraging improvement from the previous release. Alas, the slowdown in the April PMI numbers suggest that the positive momentum won’t last in next month's release.


Eurozone Retail PMI (08:10 GMT)Retail spending in Europe is holding up better than expected, relative to recent business survey data. The February and March reports of Markit’s Eurozone Retail PMI suggested that economic activity was contracting. But yesterday’s hard data from Eurostat showed that consumer spending remained positive. Retail sales increased 0.3 percent in March, which translates into a 0.9 percent year-over-year gain. Overall, not too bad, considering the diminished expectations for consumer spending lately. 

But in a sign of potential trouble for the near-term future, much of the spending increase in March was due to a hefty jump in food, drinks, and tobacco; meantime, the non-food sector ex-motor fuel slumped. In other words, the spending picture is still mixed, and so the weak PMI data may prove to be accurate after all. Indeed, if today’s April PMI release for the retail sector sticks below the neutral 50 mark, confidence will slip for expecting that the hard data can continue to buck the trend in the survey numbers.

Markit Eurozone retail PMI

Chart/data source: Markit Economics

—Edited by Clare MacCarthy


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