3 numbers to watch: EU HCPI, US Ind. Pro., US Housing Mkt Index
Eurozone inflation, US industrial production and the US NAHB Housing Market Index will drive the Wednesday's economic news.
EU Harmonized Consumer Price Index (10:00 GMT) Eurozone inflation is expected to rebound in December after a 0.2 percent decline in November. That's a relatively cheery outlook because it suggests that deflation is only a sporadic monthly pest rather than a chronic affliction. For a continent that's still suffering from a range of macro challenges, including a recession, inflation that's above zero is a good thing at this stage, even if the region's central bankers aren't always quick to agree.
Earlier this month, Eurostat published its preliminary estimate of the annual pace of inflation through December, advising that it is expected to remain unchanged from its November year-on-year pace of 2.2 percent. This is par for the course with so much sluggish macro behavior around. But while a downside surprise is unlikely, an unexpected dip in December inflation of any magnitude in the final estimate would surely alarm investors given the slack demand all around.
US Industrial Production (14:15 GMT) November's strong rise in industrial output was partly due to payback from reduced activity in October due to Hurricane Sandy, but there's no white knight waiting in the wings for December. Analysts are expecting a greatly diminished growth rate for last month: +0.2 percent vs +1.1 percent in November, although my econometric modeling suggests that we may see something closer to a flat performance. In any case, there's wide agreement that today's update looks set to bring news of a substantial downshift in industrial activity.
The crowd may be in a forgiving mood for US data, however, given yesterday's upbeat report on retail sales for December, which followed a decent if unspectacular gain for last month's payrolls. Nonetheless, if the average of my econometric forecasts holds - a gain of just 0.1 percent - that equates with industrial production's annual growth rate falling to 1.7 percent in 2012, or just above the slowest year-on-year pace in three years.
An upside surprise would come in handy right about here. Unfortunately, the odds look a bit thin, and so today's report could be a bit tricky for deciding what comes next.
US NAHB Housing Market Index (15:00 GMT) Industrial production may falter in December, but the outlook for housing via this benchmark is expected to remain firm. The consensus forecast sees another slight gain for this measure of sentiment among home builders: 48 for January, up a bit from last month's 47.
HMI is a diffusion index and so 50 is the midpoint level, an indication that half of the survey respondents consider housing market conditions to be favorable. As we approach this mark, it is clear that the tide is turning for thinking positively within the industry. “Builders across the country are reporting some of the best sales conditions they’ve seen in more than five years, with more serious buyers coming forward and a shrinking number of vacant and foreclosed properties on the market,” NAHB's chairman said with last month's release. More of the same is on tap for today's update.
In fact, a wide spectrum of housing market data has been sending bullish signals for much of the past year and there's no obvious reason for thinking that the trend is about to evaporate. The main exception, of course, is the potential for trouble if Congress doesn't raise the debt ceiling, which would trigger a technical default for the US government and wreak havoc in the credit markets. But the associated crunch time arrives next month, and there's a decent chance that the fiscal crisis will be averted... probably at the last moment. This is no way to run a railroad (or the planet's leading economy), but it's not yet clear that the new round of Beltway nonsense is infecting the housing market's revival. Next month, of course, may be another story.