3 Numbers to Watch: French output, US confidence & job openings
Tuesday brings several updates on industrial production, including a fresh set of numbers for France, which will be closely watched for new insight on assessing Eurozone’s recovery prospects. Later we’ll see two numbers that will influence the outlook for the US economy: the NFIB Small Business Optimism Index and the Job Openings and Labor Turnover Survey from the government. In addition, keep an eye out today for industrial output reports for Italy (09:00 GMT) and the UK (09:30), followed by European Central Bank President Mario Draghi's scheduled speech at 12:00 GMT.
France Industrial Production (07:45 GMT) The Bank of France (BoF) last week raised its economic projection for fourth-quarter GDP growth for France to 0.5 percent, up slightly from the previous 0.4 percent Q4 estimate. The change per se isn’t all that significant, although the positive direction of the revision speaks volumes about the trend in expectations. The stakes, of course, are high, given the heightened uncertainty these days with the prospects for the Eurozone’s recovery. If Europe’s second-largest economy can’t generate a bit of growth overall, it’s tough to imagine that anything resembling a recovery generally is in the cards.
Can today's industrial production figure generate some enthusiasm for a French recovery? Photo: Shutterstock.com
The marginally brighter outlook in the BoF’s latest projection is based in part on the bank’s upbeat survey for industrial production. In yesterday’s monthly update, “industrial production and deliveries strengthened significantly” in the November survey, BOF advised.The monthly change for the balance of opinions in this industry survey popped to its highest reading since April 2011. That’s an encouraging sign for growth prospects, although it’s unclear if the improving outlook for last month will have any effect in today’s October update on the hard data for industrial activity. But even if today’s release reveals a weak number for October, the latest BOF data holds out the possibility that November's data will bring better news.
US NFIB Small Business Optimism (12:30 GMT) One of the glaring weak spots in the US economy in recent years has been the tepid pace of expansion in the small business sector. That’s a concern given that small firms have historically created the lion’s share of jobs. With that in mind, it was disturbing to see the sharp drop in the October reading of the National Federation of Independent Business (NFIB) Small Business Optimism Index, which slumped to its lowest level since March. NFIB explained the decrease as “largely due to a precipitous decline in hiring plans and expectations for future small-business conditions.” But some if not most of the drop was due to the government shutdown in October.
“Washington paralysis is never good news for the economy, so it was no surprise that while politicians were arguing over whether or not the government should remain fully operational, small-business optimism measures deteriorated,” NFIB chief economist advised.
With the shutdown turmoil resolved, at least for now, does that set us up for a rebound in today’s November report? Yes, according to the consensus forecast via economists. The pessimism of October is widely expected to give way to a moderately brighter outlook: 92.4 for November vs. 91.6 in the previous release. That’s hardly a robust recovery, although it’s important to at least see some stability for this widely followed benchmark of small-company sentiment. If today’s forecast holds, it’ll be easier to think optimistically for the next release. Indeed, small business employment revived in November, according to last week’s update of the ADP Employment Report.
Firms with 49 or fewer employees last month posted the biggest net gain in payrolls (plus 102,000) since January — an increase that was sharply higher than October’s lukewarm gain. That’s a sign that the outlook in this critical corner of the US economy may improve in the months to come, perhaps starting with today’s NFIB report.
US Job Openings and Labor Turnover Survey (14:00 GMT) November payrolls increased by a better-than-expected 203,000. The update is a “strong report, but not stellar” my Saxo colleague Juhani Huopainen noted on Friday, although it’s good enough to stir debate anew about the timing of Fed tapering, he added. The Federal Open Market Committee meets next week and will update its economic projections, although few economists at this point expect that outgoing Fed Chairman Ben Bernanke will announce a change in the current pace of its bond-buying program.
That’s not surprising, given the fact that the 1.7 percent year-over-year growth trend in non-farm payrolls in November remained in the 1.5-1.8 percent band we’ve seen this year. In short, nothing much has changed: the labour market continues to mint new jobs at a moderate pace. Meanwhile, the Fed is also looking at many other metrics, including core inflation, which has been trending lower lately. The consumer price index, less food and energy, increased 1.7 percent on an annual basis through October. The fact that the rate is below the Fed’s 2 percent target and falling, based on recent history, suggests that tapering isn’t imminent.
For additional perspective, today’s JOLTS report will be valuable for evaluating the outlook via the internal dynamics of the labour market. On that note, the number of job openings has been inching higher lately, reaching 3.913 million in the September update — the highest in more than five years. The consensus forecast sees a slight retreat in today’s October release, although the number may be artificially weak due to the government shutdown that harassed economic activity that month. As such, the market will likely overlook a mild setback in today’s number and remain focused on the better-than-expected payrolls news. The taper talk is probably premature in terms of expecting a change for this month, but another JOLTS update will keep the rumours bubbling.