3 Numbers to Watch: ECB report, US retail sales & jobless claims
In the wake of yesterday’s upbeat news on Eurozone industrial production, today’s monthly report from the European Central Bank (ECB) will be carefully dissected for signals on the next phase for monetary policy. Meanwhile, analysts expect an upbeat report for US retail sales while the weekly number for US jobless claims is projected to post a small increase.
European Central Bank Monthly Report (08:00 GMT): Yesterday’s better-than-expected gain in industrial production in the European Union for April marks the third straight monthly improvement. Notably, France delivered a strong increase in output for a change. The surprisingly positive report is hardly a game changer—on a year-over-year basis, industrial output is still shrinking. But the pace of contraction is easing. Is this a sign that Europe’s recession is over? It’s too soon to say, although the outlook is certainly brighter. Survey data from Markit Economics suggests that May looks promising for continued progress. The Eurozone Composite PMI turned upwards again last month, which tells us that the downturn lost some of its bite again last month.
What do policy makers at the ECB make of all this? Today’s monthly report from the central bank may provide an answer. For example, in the lead editorial in each of the last two reports the bank warned that the economic outlook was still burdened by the potential for weaker-than-expected domestic demand and “slow or insufficient implementation of structural reforms in the euro area.” As a result, economic confidence was still vulnerable and so the possibility that the recovery could be delayed was a real and present danger. That’s still true, of course, and it will remain so for some time. That said, it’ll be interesting to see how or if the ECB modifies its assessment of risk in the wake of yesterday's industrial production data.
US Retail Sales (12:30 GMT): Consumer spending has been wobbly in recent months, including the first outright drop in retail sales in March for the first time since last October. April mounted a rebound, albeit a mild one, with retail spending edging higher by just 0.1 percent. Will today’s update clarify the trend?
Economists expect a favorable number in today’s May report: the consensus forecast sees a 0.5 percent increase, which is also in line with my econometric-based projection. A stronger pace of growth would be welcome at this stage, although a negative surprise would rattle sentiment. Granted, the recession risk remains low for the US, but the broad trend has weakened in the spring. Today’s release will be closely watched for deeper perspective on whether the spring slowdown will extend into the summer.
US Initial Jobless Claims (12:30 GMT): Today’s weekly update on new filings for unemployment benefits will be evaluated in context with the retail sales report that’s also released at 12:30 GMT. Analysts think we’ll see a small uptick in claims, but that’s not likely to challenge the assumption that modest growth in the labour market is still the path of least resistance.
Even so, the news from earlier this week that job openings were unchanged in April versus March is a reminder that the economy is still struggling to recover from the last recession. Roughly three unemployed persons were looking for work in April for every job opening, the government estimates. That’s a big improvement from the nearly 7-to-1 ratio at the height of the Great Recession, but it’s still worse than at the darkest point in the prior downturn in 2001. An economist at the Economic Policy Institute notes that "unemployed workers far outnumber job openings in every sector," which reflects weak demand for workers. Agreed, but if today’s jobless claims can more or less hold steady, and retail sales manage to run a bit higher, the outlook for slow but steady improvement will remain intact.