Article / 23 January 2014 at 6:25 GMT

3 Numbers to Watch: EU & US Manufacturing PMIs, US home sales

editor/analyst /
United States

• Economists see Ireland leading Eurozone growth in 2014 at 2%
• US data expected to confirm manufacturing picking up speed
• Possible headwinds headed for US housing market

Thursday’s a busy day for economic news, in part due to the arrival of January's flash estimates for purchasing managers indexes (PMI) for the Eurozone and the US. Later, we’ll see an update on existing home sales for the US. Keep in mind that PMI data for France (07:58 GMT) and Germany (08:28 GMT), along with an update on jobless claims in the US (13:30 GMT), is also on tap for the day ahead.

EU Manufacturing and Services Purchasing Managers Index (08:58 GMT) Economists expect that Ireland will be the leader this year for growth in the Eurozone, according to a new Reuters poll. "After a disappointing economic growth performance in 2013, based on the official numbers, the government's official 2 percent GDP growth projection for 2014 should be met if not bettered, assuming no major external shocks," said Alan McQuaid of Merrion Stockbrokers. Two percent is mild in the grand scheme of what's unfolding throughout the global economy, but it’s still well beyond the realm of plausibility for projecting Eurozone growth. GDP in the euro area advanced a thin 0.1 percent in last year’s third quarter, Eurostat’s latest report shows.


Ireland has something to celebrate with 2 percent growth forecast for 2014. Photo: Paul Keeling \

The outlook, however, looks somewhat better (or less troubling, if you prefer), based on new IMF forecasts. “The euro area is turning the corner from recession to recovery, the fund said in the January edition of its World Economic Outlook that was published earlier this week. “Growth is projected to strengthen to 1 percent in 2014 and 1.4 percent in 2015, but the recovery will be uneven.”

How uneven? Today’s preliminary look at January data for the manufacturing and services sectors may leave some clues. In the final update for December, the Markit Eurozone Composite PMI inched higher as it approached a two-and-a-half-year high. Manufacturing led the way, with growth accelerating to its strongest pace since May 2011. But keep your eye on the services side of the equation — although this slice of the economy is still expanding, the rate of growth dipped to a four-month low. Nonetheless, economists think we’ll see moderately higher numbers all around in today’s EU flash estimates. In that case, perhaps the IMF’s right about raising 2014 expectations for Europe.


US Manufacturing PMI (14:00 GMT) The week so far has been a sleepy affair for US economic news, but today’s first estimate of the January PMI for manufacturing may perk things up a bit. In the last report, this cyclically sensitive sector posted a moderately stronger rate of growth. Markit’s PMI data advanced to 55.0, last year’s second-highest reading. The competing data in the ISM Manufacturing Index has been stronger, and the PMI data looks inclined to agree in recent months.

The sight of two benchmarks for manufacturing telling us that the sector is humming along isn’t surprising these days. Some analysts speak of a renaissance for US companies in this sector. According to a recent study by US Senator Amy Klobuchar (D-Minn.) and the Congressional Joint Economic Committee, “manufacturing is experiencing a comeback,” in part because of a “reshoring” effect that’s pulling manufacturing employment back to the US. “Several factors have made locating production in the US more attractive,” the report advised: “productivity gains, increases in labour costs among key competitors, lower natural gas costs in the US and the benefits of locating production and research and development in close proximity.”

Some might dismiss such glowing reviews as political banter. Perhaps, although today’s PMI release will offer some perspective on how the trend looks at the start of the year from an independent source. For the moment, the crowd is optimistic that the data du jour will bring more good news. The consensus forecast sees a slight rise in the January PMI to 55, up a bit from 54.4 at last year’s close. Labeling the encouraging trend in manufacturing of late a renaissance may be overbaked, at least for now. But there’s no denying that this sector’s looking stronger, as today’s PMI release is expected to report.


US Existing Home Sales (15:00 GMT) Is the housing market headed for trouble in 2014? It’s easy to expect the worst if you assume that interest rates are headed higher, a trend that will reduce the allure of financing new purchases. Last week’s update on new residential construction didn’t help sentiment. Housing starts in December posted a modest retreat. The good news is that starts are still close to a three-year high and so it’s premature to declare the housing recovery dead and buried.

Nonetheless, the big gains for the residential market are probably behind us. The combination of higher financing costs and the natural aging process that eventually slows every bull market are in play. There’s a fine line between distinguishing between a maturing phase vs. the end of the rebound. The devil’s in the details, including today’s December update on existing home sales, which is a bellwether for the industry by virtue of the vast number of transactions in this corner vs. newly built homes.

Today’s release is expected to be relatively neutral. The consensus forecast anticipates that December's sales will match the previous month’s total at 4.9 million units (seasonally-adjusted annualised data). That’s not especially inspiring if you’re expecting a roaring bull market, but it’s in line with a market that’s still recovering, albeit at a lesser pace than we’ve seen over the past two years.



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