Article / 13 November 2012 at 5:14 GMT

3 Numbers To Watch: ZEW Sentiment, UK CPI, US NFIB Small Business

James Picerno James Picerno
editor/analyst /
United States

Will the recent revival in the financial elite's outlook for the German economy survive last week's macro warning? Is consumer price inflation in the UK still slipping? Will business sentiment in the small business community in the U.S. remain at recession levels? The answers await in today's 'Three Numbers to Watch'.

German ZEW Economic Sentiment (10:00 GMT) The monthly update of financial experts’ outlook for the German economy will provide a fresh clue about the blowback, if any, to sentiment in the wake of last week's recession warning from the government’s council of economic advisers. Germany's export-dependent economy will see faster import growth for the near-term future, the German Council of Economic Experts advised in its newly published annual report. That will weigh on German GDP, which is expected to rise at a sluggish 0.8% next year, or roughly unchanged from 2012. The country's previous immunity to the euro crisis, in short, is set to crack a bit more. Or is it? The sober advisory from the government contrasts with a relatively upbeat prediction for today's ZEW release. Economists are anticipating some improvement in the economic sentiment index for November, which would mark the third rise in a row following the year-to-date low set in August.


The ZEW index sets us up for next week’s German Q3 GDP report, scheduled for release on Friday, November 23. "At the moment we are going through a period of slowdown and weakness," says Postbank's Thilo Heidrich. "This will continue for a couple of months yet before the economy regains a bit of momentum again around springtime." A Reuters poll of economists forecasts a dip in GDP growth to 0.2% for the July-through-September quarter, down slightly from 0.3% in Q2.

UK CPI (09:30 GMT) Consumer inflation has been sliding over the past year in Britain. That would be good news in a normal business cycle environment. But we live in abnormal macro times and at this late date the word that pricing pressures continue to lose altitude isn't likely to be greeted with cheers from an economic perspective. The 2.2% annual inflation rate for consumer prices through September is the slowest since November 2009's 1.9% pace. Then again, relatively low inflation that's not going lower creates the possibility for optimal pricing conditions. Moving closer to deflation is a losing proposition at the moment, but economists expect that October's annual inflation rate will tick up to 2.3%. That's close enough to September's 2.2% rate to unleash a round of yawns. No news is good news on the inflation front at this stage if only to offer another data point in favor of thinking that Britain's great escape from its recent double-dip recession is intact.


US National Federation of Independent Business (NFIB) Small Business Optimism (12:30 GMT) Much was made of the jobs-creation prowess of small firms during the US presidential campaign—these companies are said to account for the majority of expanding the nation's payrolls. Today new data will be unveiled showing sentiment from small business owners, via the monthly survey update via members of the National Federation of Independent Business. Economists are expecting a modest improvement, although there's still a long road ahead for this index, which remains mired in recession-level territory.

NFIB noted last month that "low expectations and pessimism" prevailed in the small-business community. "Since the commencement of NFIB's monthly surveys in 1986, the index has been below 93.0 a total of 56 times; 32 of which have occurred since the recovery began in June 2009." If the consensus is right, a bit more cheer—or should we say less pessimism?—is in store for the November reading: 93.0 vs. 92.8 for October. If that guesstimate holds, optimism will burn slightly brighter for anticipating the remainder of the week's US economic updates, starting with tomorrow's all-important retail sales report. Then again, the complications of the fiscal cliff will still be with us regardless.

Aurora Speedster Aurora Speedster
If CPI is released at 2.3% or higher it would further muddle the Monetary Policy Committee’s decision come December 6th. Previous expectations were for the committee to suspend monetary easing, especially in the face of surging GDP. However, with recent data disappointing far below market estimates in the last month, it seems that overall sentiment – as well as the central bank’s belief – has changed.

Trading news with
James Picerno James Picerno
It's hard to imagine that BoE is going to get worked up over consumer inflation at 2.3% yoy at this point. The economy may no longer be technically in recession, but confidence that robust growth is coming is still slight. A stronger employment report for the UK (released tomorrow), it seems, would be more likely to impact monetary policy at this stage than inflation. But expectations are muted on this front too. More of the same, in short, seems likely until the economy is on sounder footing.
James Picerno James Picerno
UK CPI was up 2.7% for the year through Oct--well above consensus expectations and significantly higher than the previous read of 2.2%. A sharp rise in university tuition fees is the leading culprit. Core inflation also rose more than expected. Can BoE tolerate this? Perhaps not, although one month alone doesn't tell us much. But the pressure's on. Next month's inflation report has a lot less wiggle room all of a sudden.


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