3 Numbers: Upbeat EZ Composite PMI for July points to solid recovery
- A rebound is expected in today’s Eurozone Composite PMI for July
- Economists mixed about flash data for US Manufacturing and Services PMIs
- US existing home sales in July may tick down to a middling rate vs recent history
- These sales have been stuck in neutral, bouncing around in a tight range this year
Monday brings a range of flash updates for survey PMIs in July, including reports for the Eurozone Composite, US Manufacturing, and US Services indexes. We’ll also see the June numbers on US existing home sales.
Eurozone: Composite PMI (0800 GMT) Economists are expecting that today’s survey data will continue to forecast moderate growth for the euro area at the start of the third quarter.
The Composite PMI is on track to tick fractionally lower: 56.2 in the flash data for July, according to TradingEconomics.com’s consensus forecast.
But if the projection is right, the index will post its seventh straight reading of 56 or higher – an upbeat trend that points to an economic recovery that’s likely to carry over through the second half of the year.
The forecast suggests that quarterly GDP growth for the Eurozone will remain stable at 0.6%, perhaps a bit faster.
A new economic estimate for the Eurozone from the Survey of Professional Forecasters offers a similar outlook. Respondents said that the currency bloc’s growth rate will accelerate to 1.9% this year from a previous estimate of 1.7%.
Despite the upbeat outlook for the economy, the European Central Bank last week left interest rates unchanged and ECB chief Mario Draghi was vague on details about when monetary policy would change to a hawkish bias.
A key factor: inflation wasn’t yet firm enough to warrant tighter policy, he explained. “We need to be persistent and patient because we aren't there yet,” he said at a news conference.
Based on consensus forecasts via TradingEconomics.com, the services sector is expected to maintain a moderately strong rate of growth. Manufacturing is also expanding, but the initial PMI estimate for July is projected to show that the pace of expansion remains relatively sluggish.
Last week’s regional Fed data for manufacturing in July also reflected a softer trend. The New York Fed and Philly Fed manufacturing indices fell, suggesting that the growth rate is on track to cool in the third quarter.
“The preponderance of recent survey data point to improving conditions in the manufacturing sector, and we expect the underlying trend of reported output to gradually accelerate in the months ahead,” noted the chief economist at MFR last week.
“However, an ongoing inventory adjustment in the automotive sector will likely dampen headline factory output data over the near term.”
Whatever the source of the slowdown, today’s PMI data for manufacturing data will probably reaffirm that the sector has downshifted recently. By contrast, the preliminary survey data for services is projected to show that this component of the US economy is expanding at a slightly faster rate.
Overall, today’s PMI reports will likely provide more support for anticipating that moderate US growth remains a reasonable forecast for the near term.
Despite the latest bounce in housing starts, some economists expect that any improvement in home building will be modest in the months ahead.
“A lack of workers is limiting the ability of builders to build, and input costs are also an issue,” said the chief economist at Naroff Economic Advisors. “I don't expect this part of the economy to add greatly to growth going forward.”
Today’s update on home sales isn’t expected to suggest otherwise. Economists are projecting that sales of existing houses will slip to 5.57 million units in June, down slightly from 5.62 million previously (seasonally adjusted annual rate), based on TradingEconomics.com’s consensus forecast. If the estimate is right, sales will remain at a middling level against recent history.
For the year so far, existing sales have been stuck in neutral, bouncing around in a tight range year to date.
One headwind has been a relatively low supply of moderately priced houses. “Listings in the affordable price range are scarce, homes are coming off the market at an extremely fast pace and the prevalence of multiple offers in some markets are pushing prices higher,” said the chief economist at the National Association of Realtors last month.
James Picerno is a macro analyst/editor at CapitalSpectator.com. Follow James or post your comment below to engage with Saxo Bank's social trading platform.