3 Numbers to Watch: Italian confidence, US activity & spending
Monday’s a slow day for scheduled economic news in Europe, although the update on consumer confidence for Italy is worth watching for guidance on assessing what's in store for Europe’s third-largest economy in the year ahead. Later, we’ll see new US data on personal income and spending along with a fresh look at the big-picture trend via the November release of the Chicago Fed National Activity Index.
Italy Consumer Confidence (09:00 GMT) Some analysts say that Italy has finally emerged from recession. The latest GDP data shows that economic output was unchanged in this year’s third quarter versus the previous quarter. That doesn’t sound like much, but it’s notable by the recent standards of Europe’s third-largest economy. The flat performance for national output is the first time since the second quarter of 2011 that Italy’s economy didn’t shrink.
Progress of a degree seems to be bubbling. Nonetheless, it’s premature to argue that this struggling nation has turned the corner for the better. Indeed, an official at Italy’s statistical agency Istat warned after the recent GDP this month: “It's too early to say that the recession is finished.”
Are Italian consumers ready to show an appetite for spending again? Photo: Shutterstock.com
Is that too harsh? Not necessarily, according to some pundits. The head of Confindustria, a business lobby in Italy, predicts that the economy won’t show meaningful growth for years. Whatever the timetable for recovery, there’s broad agreement that a key source of Italy’s troubles is an economy that remains uncompetitive. The solution is largely bound up with politics. A variety of reforms is essential — in both the political and economic spheres. New elections are expected for 2014, although no one’s expecting big changes at this point. Yet some politicians are at least talking about moving forward. “We will present our complete proposals on labour reform in January,” says the head of Italy's Democratic Party, the main partner in the current coalition government.
Meantime, today’s update on consumer confidence in December will offer a new clue for deciding how soon (of if) the big-picture outlook will start delivering better news. Italy’s economy may be stuck in neutral at the moment, but the mood among consumers has improved lately. That’s hardly a silver bullet, but it’s still encouraging. If there’s any chance that Italy can recover in 2014, an upbeat consumer sector is essential. For the moment, there's mild optimism on that front. Let’s see if that’s still true after reading today's release.
US Chicago Fed National Activity Index (13:30 GMT) The economic profile has been perking up lately, as several updates from last week suggest. Industrial production posted a strong rebound in November and third-quarter GDP was revised up again in Friday’s release to a 4.1 percent annual rate — the highest since 2011’s fourth quarter. Meanwhile, the flash estimates of Markit’s manufacturing and services PMI surveys for December point to continued growth for the final month of the year. The outlier was last week’s initial jobless claims report, which raises concern that the labour market might be heading into trouble as 2013 comes to a close. For the second week in a row, new filings for jobless benefits increased and are now at the highest level since March. Claims data can be volatile and therefore misleading in the short run and so it’s premature to conclude that this leading indicator’s weakness of late is a genuine sign of trouble. We’ll know more after reading this Thursday’s update.
Meantime, keep an eye on today’s November release of the Chicago Fed National Activity Index (CFNAI). Although this broad measure of the macro trend won’t help us interpret this month’s worrisome updates on jobless claims, we’ll at least have a robust profile of the economy’s momentum for last month. The good news is that the Chicago Fed’s business-cycle benchmark has been posting modest increases lately, which means that the economy is growing a bit faster.
In the previous update for October, the three-month moving average of CFNAI inched into positive territory for the first time since February: the plus 0.06 reading indicates growth at slightly above the historical trend. My econometric modeling suggests that the mild growth trend will roll on in today’s update. Another positive number for this index won’t wipe away the uncertainty tied to this month’s jobless claims data. But if CFNAI’s three-month average for November remains above zero, it will at least provide additional confidence for thinking that the economy had a positive tailwind going into the end of the year.
US Personal Income & Spending (13:30 GMT) Consumers have been inclined to spend lately, which helps explain why the economy has remained relatively resilient. The income side of the ledger, however, suffered a rare setback in October. The decrease may be a temporary effect of the government shutdown for that month, in which case we should see a rebound in today’s number. In fact, that’s what the crowd’s expecting: the consensus forecast calls for a 0.5 percent rise for both personal income and personal consumption expenditures for November versus the previous month.
If the forecast holds, last month’s spending and income release will provide the strongest set of monthly gains since February. The news will look all the more encouraging in the wake of last week’s run of (mostly) bullish economic updates, including another upwardly revised third-quarter GDP estimate that leaves room for thinking that growth is accelerating. "The wheels of the economy are turning fast enough to bring down the unemployment rate further," one economist advises.
Meanwhile, today’s final December revision on the mood among consumers is projected to show a brightening state of mind, according to the Reuters/University of Michigan Index of Consumer Sentiment (scheduled for release at 14:55 GMT). The improving labour market in recent months has been a critical factor — a factor that played a role in convincing the Federal Reserve last week to begin tapering its bond-buying program. The one sore spot is the spike in jobless claims this month. But the market’s still focused elsewhere at the moment and so today’s income and spending report is widely expected to bring some holiday cheer at the start of Christmas week.