3 Numbers to Watch: EU CPI, US ADP employment and ISM Services
Today's initial estimate of Eurozone inflation for March may offer clues about whether the European Central Bank will announce a more aggressive program of monetary stimulus in tomorrow's policy statement. Later, we will learn how the March numbers stack up in the ADP Employment Report and the ISM Non-Manufacturing Index for the US.
EU Consumer Price Inflation (09:00 GMT): The Eurozone is still in recession and it's not obvious that the contraction is easing, as yesterday's update on unemployment reminds us. Revised data from Eurostat shows that the jobless rate rose to an EU record of 12 percent in the first two months of the year (pdf). Meanwhile, the final estimate for the Eurozone manufacturing purchasing managers index for March suggests that the "downturn deepens," according to Markit Economics (pdf). The trend in these indicators implies that today's flash update on Eurozone inflation for last month will bring more bad news in the form of further deceleration in the growth rate of prices. That's the general outlook, with the consensus view calling for a 1.7 percent annual rate of inflation in today's March estimate, down again from 1.8 percent previously.
Lower inflation at this stage is bad news, as it offers more one indication that demand is still moving in the wrong direction. Falling inflation is also a sign that monetary policy is too tight. Interest rates appear low in nominal terms, but don't confuse that with the accommodative policy that would be appropriate for what ails the Eurozone at this point.
This much is clear: if today's inflation release shows more deceleration for March, the pressure will increase on the European Central Bank to act by embracing more stimulus. For the moment, that's unlikely, or so analysts say. The consensus prediction still sees no change in the ECB's 0.75 percent target rate in tomorrow's policy announcement. A bigger-than-expected drop in today's inflation report, however, may change the ECB's game plan, and the market's expectations.
US ADP Employment Report (12:15 GMT): The market's expecting another respectable gain in private nonfarm payrolls in today's March update from ADP. If the prediction holds, there will be another data point to consider for thinking positively about Friday's official estimate of the March labor market from the government. For the moment, economists think the Labor Department will report another round of decent-if-not-stellar rate of growth for last month.
I'm inclined to agree, but the recent upturn in weekly jobless claims looks a bit troubling. That may be noise, of course. This is a volatile series and week-to-week changes don’t tell us much. Nonetheless, after the mixed news on manufacturing for March, the data flow for last month's profile so far is off to a shaky start. True, the nearly complete profile of US data through February looks encouraging. But with Europe's recession showing few signs of easing, and the automatic federal budget cuts rolling on and starting to squeeze some regions, this is no time to assume that the past must be a rosy prologue with every economic release.
ISM Non-Manufacturing Index (14:00): The manufacturing sector's growth slowed a fair amount in March, according to Monday's update, but economists see a steady rate of expansion in today's release for the services industry. The consensus forecast calls for the Institute of Supply Management's Non-Manufacturing Index to hold its ground at a strong 56, or well above the neutral 50 mark. If the reality ends up matching expectations, the news will soothe any worries tied to the softer trend in manufacturing for last month.
On the other hand, this isn't a good time for a downside surprise. If today's services industry follows its manufacturing counterpart with a sharply lower reading, it's going to be hard to keep the crowd's sentiment buoyant. All the more so if the preceding release on last month's pace of jobs growth via ADP falls short of expectations.