3 Numbers: US home sales for August set to rebound
- UK CBI Industrial Trends Survey set to confirm upbeat Manufacturing PMI
- A big-picture review for the US awaits in today’s Chicago Fed National Activity Index
- Existing home sales in the US expected to rebound in today’s August report
best level since the recession ended. Photo: iStock
UK: CBI Industrial Trends Survey (1000 GMT) The outlook for the UK economy is still suffering from a hefty dose of uncertainty in the wake of June’s Brexit vote. But the worst fears continue to look overblown. Although estimates for growth have taken a hit, it’s premature to assume that a recession is fate.
The latest monthly GDP estimate from the National Institute of Economic and Social Research (NIESR) projects that output increased 0.3% for the three months through August. That’s the slowest gain in a year and a substantially softer pace vs. the 0.6% rise in the second quarter. The question is whether growth is set to deteriorate further.
That’s still a reasonable assumption, although it’s debatable if slower growth will soon lead to an outright recession. Meanwhile, the Organisation for Economic Cooperation and Development this week trimmed its UK GDP growth estimate for 2017 to a weak 1%, a sharp deceleration from the projected 1.8% for this year. “While a strong response from the Bank of England has helped stabilise markets, uncertainty remains extremely high and risks are clearly on the downside,” the OECD advised on Monday.
On the plus side, survey data for Britain’s manufacturing sector hints at the possibility that economists could be underestimating the potential for a post-Brexit rebound. The UK Manufacturing PMI in August revived to a moderately strong 53.3 reading (above the neutral 50 mark) after falling into contractionary territory in July.
“Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual,” said a senior economist at IHS Markit, which publishes the PMI figures.
Today’s update on manufacturing from the Confederation of British Industry (CBI) offers another perspective on UK manufacturing. In contrast with the PMI data for August, CBI’s order-book balance dipped a bit deeper into the red last month. The negative 5% reading for August – a three-month low – reflects the difference between the percentage of firms reporting higher-than-normal vs. lower orders.
The upbeat PMI data implies that today’s CBI reading will firm up. If the index continues to fall, however, doubts about Britain’s macro trend will resonate a bit deeper.
The monthly version of the benchmark is on track to ease to 0.15 for August, down from 0.27, according to Econoday.com’s consensus forecast. The good news: the monthly prediction’s implied three-month average for the index, which is used for gauging recession risk, is headed for a modest gain to 0.16.
If the three-month estimate holds up, the improvement will mark the first positive reading for this smoothed version of the benchmark in more than a year – and well above the negative 0.7 line that marks the start of recession, based on Chicago Fed guidelines.
Meantime, the case for optimism can still be found in several GDP projections for the third quarter. The Atlanta Fed’s GDPNow model is current estimating Q3 growth at 2.9% (seasonally adjusted annual rate). That’s a solid improvement over the roughly 1% gains in each of the previous three quarters. But will the forecast hold up by the time the “advance” GDP report is published on October 28?
There’s still a long road of data to cover between now and the end of October. Today’s release from the Chicago Fed will provide deeper context for deciding if the reassuring outlook via the Atlanta Fed’s model is still a reasonable guesstimate.
The National Association of Home Builders on Monday reported that its sentiment index jumped to its highest reading this month in nearly a year. “The single-family market continues to make gradual gains and we expect this upward momentum will build throughout the remainder of the year and into 2017,” said NAHB’s chairman.
Several analysts agree, arguing that last month's soft construction report is only a momentum glitch. “We believe that the slowdown in August [housing] starts likely owes to a temporary weather effect rather than a substantive shift in the underlying trend,” according to a Barclays economist.
Perhaps, then, today’s numbers on existing home sales for August will offer a degree of encouragement. In fact, that’s what the crowd is expecting. Econoday.com’s consensus forecast calls for a modest gain in sales to 5.44 million units (seasonally adjusted annualised rate), up modestly from 5.39 million in the previous month.