3 Numbers To Watch: EU retail sales, US ADP jobs, US ISM services
• EC predicts growth in Eurozone GDP
• Poor weather affects US jobs data
• Macro trend stabilises for US manufacturing and services
There is no shortage of economic news scheduled for Wednesday, and three influential numbers will shape expectations today: retail sales for the Eurozone, US updates on private payrolls (ADP employment) and the services sector (Institute of Supply Management [ISM] Non-Manufacturing Index). Other reports for Wednesday that will draw close attention include several releases for the purchasing managers index (PMI), including the EU Services PMI (08.58 GMT), followed by a revised estimate of last year’s fourth-quarter GDP for the eurozone (10.00 GMT).
France's retail spending figures have improved for January. Photo: JMLPYT / iStock
Eurozone GDP will grow 1.2 percent this year, the European Commission (EC) predicted in its recently-revised forecast. That’s slightly higher than 1.0 percent projection from last November’s quarterly estimate. The EC advises: “The outlook is for a moderate step-up in economic growth.” Is that more than wishful thinking? Today’s January report on retail sales should offer a preliminary answer.
The current outlook for January spending in the consumer sector for the Eurozone overall is encouraging. This is due to a rebound in retail sales in this year’s first month for Europe's two main economies. Following December’s slump, Germany and France posted handsome gains with January retail activity, according to Eurostat's database. In addition, the Eurozone Retail PMI jumped above the neutral 50 mark at the start of 2014 — the first sign of growth in five months.
But the usual caveats apply, including the familiar site of Germany leading the revival in spending in January. Meanwhile, the upturn in retail sales follows an usually weak December so it’s unclear if the subsequent pop is a positive sign for the months ahead or just a dead-cat bounce. Nonetheless, if today’s hard data can stay positive for the eurozone generally, the EC’s optimism will look a bit more persuasive, at least for a day.
Source: Eurostat, Markit Economics
The economy has been creating jobs more slowly in recent months and the deceleration is expected to continue with today’s February report on private payrolls based on the ADP’s estimate. Another soft update isn’t terribly surprising if you subscribe to the view that a rough winter has weighed on growth. In that case, February’s storms will have the predictable effect on the labour market. Economists are expecting as much: the consensus forecast calls for private payrolls in February to increase by 150,000 vs. the previous month. That’s noticeably slower than January’s 175,000 advance.
If the crowd’s expectations are accurate, we’ll see the third straight month of slower growth for private payrolls in today’s ADP release. In that case, there will be a stronger case for keeping expectations muted for Friday’s official jobs report from the government.
February's jobs data may be a victim of the weather but some analysts are wondering if a wobbly labour market will push the US Federal Reserve to rethink its current plan to announce another instalment of winding down its bond-buying programme at its meeting that is scheduled for later this month. Paul Dales at Capital Economics told the International Business Times earlier this week: “A third consecutive month of weak payroll growth in February would raise speculation that the Fed will pause the tapering of its asset purchases. But because any weakness this month was probably due to the unusually bad weather, we believe the Fed will stick to its current tapering plans.”
Maybe, although a downside surprise in today’s ADP report relative to the consensus forecast may convince the crowd to assume otherwise.
Source: ADP, St Louis Fed
The hard data for the US economy may be showing signs of stress lately but survey numbers for the manufacturing and services sectors suggest that the macro trend is stabilising. The ISM Manufacturing Index rebounded in February, signalling a modest expansion for this cyclically sensitive piece of the economy. Although today’s update for the ISM Non-Manufacturing (Services) Index is expected to show a slight decline for last month, analysts think it will remain well above the neutral 50 mark.
Keep in mind that in the previous release, the ISM Services Index rose to 54, the highest since last October. No-one will confuse this with a roaring expansion but it’s high enough to encourage expectations that services — the overwhelmingly dominant slice of the US economy — will continue to expand. Even if the consensus forecast is accurate and the services index dips slightly to 53.5 in February, today’s release (along with Monday’s news of an upturn in the ISM Manufacturing Index) will help take the edge off any bad news that emerges in the ADP Employment Report that’s released earlier (see note above).
"The economy is beginning the slow process of digging its way out of the weather-induced slowdown of recent months," said Millan Mulraine, TD Securities’ deputy chief economist. Speaking earlier this week, after the release of stronger data for the February ISM Manufacturing Index, Mulraine told Reuters that “this upward momentum should be sustained in the coming months”. That forecast will resonate if today’s report on the services sector lives up to expectations.
For additional context, look to another release today: Markit’s US Services PMI report, which arrives at 14.00 GMT, or a bit more than an hour ahead of ISM data.