Sterling has been blasted lower after BoE governor Carney cast doubt on a previously pretty-much-expected UK May rate hike. The EU's rejection of Britain's latest Brexit-Irish border plan only served to deepen the rot.
Article / 30 August 2016 at 5:00 GMT

3 Numbers: US confidence buoyed over the summer

editor/analyst /
United States
  • Eurozone business sentiment may weaken after softer consumer data
  • US Consumer Confidence Index is expected to remain unchanged in August
  • Will Gfk’s UK Consumer Confidence Index continue to slide in August?

By James Picerno

The mood across Europe’s business and consumer sectors is in focus today with a survey update from the European Commission. Later, we’ll see new numbers on consumer confidence in August for the US and the UK.

Eurozone: Business Climate Indicator (0900 GMT)’s weekly estimate of third quarter GDP growth for the euro area continues to slip. Last Friday’s update reflected a slight decline to a 0.21% quarter-over-quarter rise, the weakest estimate so far for the Q3 projection. If the prediction holds, Eurozone GDP growth in the July-September period will advance at the slowest pace in two years.

A broader review of data suggests that the jury’s still out on what the actual numbers will reveal, as suggested by last week’s survey data from Markit Economics. The Flash Eurozone Composite Output Index in August ticked up to a seven-month high that equates with GDP expanding at a quarterly 0.3% rate in Q3, unchanged from Q2’s gain.

“The August flash PMI indicates that the Eurozone remains on a steady growth path in the third quarter, with no signs of the recovery being derailed by ‘Brexit’ uncertainty,” Markit’s chief economist noted last week.

Today’s survey update for Europe’s business and consumer sectors in August via the European Commission will offer more context for evaluating the broad Q3 trend, which remains a work in progress. Note, however, that the preliminary numbers for consumer sentiment in August slipped for the fourth month in a row.

The mood in the business community is decidedly more upbeat, albeit based on data through July. Given what we already know about the consumer sector, today’s first look at August numbers for the Business Climate Indicator will probably show some softening in the mood.

If so, the outlook for Q3 GDP will remain mixed at best until we see more data for the current quarter.

US: Consumer Confidence Index (1400 GMT) Consumer spending in July advanced for the fourth consecutive month, delivering respectable year-on-year growth of 3.8%.

Yesterday’s update suggests that the outlook for the critical component of US activity remains on track to expand at a healthy pace in the third quarter. “The consumer is going to remain the main driver of growth,” predicted the chief economist at Regions Financial Corp. “Continued improvement in the labor market is supporting income growth. It’s consistent with a solid third quarter.”

The Atlanta Fed's GDPNow model agrees. Yesterday's update projected that Q3 economic output will advance 3.5%--a strong round of acceleration against Q2's weak 1.1% rise.

 Upbeat: Consumer spending in the US has enjoyed a four-month upward run. Photo: iStock

In line with the positive trend overall, recession risk remains low these days, based on data through July. Meantime, near-term projections for the macro trend continue to point to moderately stronger growth.

Sentiment data for consumers has been supportive of an upbeat outlook, although the preliminary August reading for the University of Michigan’s Consumer Sentiment Index dipped slightly, touching a four-month low.

“Less favourable personal financial prospects were largely offset by a slight improvement in the outlook for the overall economy,” said UoM’s chief economist for surveys.

But the hard data on personal income for July edged up to a 0.4% increase, the strongest monthly gain since April. Income growth for the annual comparison firmed up a bit as well, rising 3.3% against the year-earlier level.

Perhaps, then, it’s no surprise to find that today’s August release of the Conference Board’s Consumer Confidence Index is expected to hold steady at 97.3, according to’s consensus forecast.

If the prediction, holds, confidence is set to stick close to the highest level so far this year - news that will provide fresh support for expecting that Q3 GDP growth will post a sharp rebound after tepid gains in the first half of this year.

UK: Gfk Consumer Confidence Index (TBD) Britain’s consumer sector so far has defied the dark economic forecasts that followed June’s Brexit vote.

The latest example of surprisingly firm data is last week’s report from the Confederation of British Industry, which advised that its survey-based headline index for retail spending rebounded to +9 in August from -14 in July.

"The summer weather has brought shoppers out onto the high street with retailers reporting that sales growth has risen, outdoing expectations, although firms do expect sales growth to ease next month," said the group’s head of economic analysis and surveys.

Earlier in the month, official data on retail spending from Britain’s Office for National Statistics revealed that consumption rebounded by a solid 1.4% in July after tumbling 0.9% in June.

Gfk’s monthly update on consumer confidence will offer more insight into the near-term outlook for retail spending. But note that the numbers for this benchmark paint a darker profile. Gfk’s Consumer Confidence Index fell sharply in July, posting the biggest monthly decline in over 26 years.

Given the upbeat data from other sources, perhaps we’ll see a rebound in today’s monthly report from Gfk. Otherwise, another slide in confidence for August will raise new doubts about the sustainability of firm spending growth in the months ahead.

– 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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