3 Numbers to Watch: UK retail sales, US home sales and jobless
Recent economic data for Britain still points to continued growth and today’s retail sales report is expected to add another data point to the bullish trend. Later, the market will focus on jobless claims and existing home sales in the US—the first batch of economic reports in the wake of yesterday’s Fed decision to begin "modestly" tapering its monetary stimulus program.
Hale and hearty: the UK's economy goes from strength to strength. Pic: Ilia Torlin
UK Retail Sales (09:30 GMT): Britain’s unemployment rate dropped to 7.4 percent in October, the lowest rate in four years, according to yesterday’s labour market update. The decline surprised many analysts, inspiring new predictions that the Bank of England (BoE) may raise interest rates sooner than expected. BoE Governor Mark Carney recently said that a seven percent threshold for the jobless rate could trigger a fresh look at the timing for hiking rates. With the latest number moving close to that tipping point, every new economic release that delivers upbeat news will be another excuse to reconsider the date for tightening monetary policy—starting with today’s retail sales report for November.
Retail spending has been a bit wobbly lately in the monthly comparisons, although the year-over-year trend has remained stable in the 1.5-plus percent range. Today’s report is expected to deliver stronger data, with the annual pace projected to rise to 2.3 percent. If so, that would be the fastest annual increase since July and one more clue for thinking that economic growth is accelerating. Adding to the positive momentum in the data releases is yesterday's report that retail sales revived sharply in December, based on the Confederation of British Industry Distributive Trades Survey. If today’s hard data on retail activity also looks bullish, the news will fuel more speculation about the potential for an early rate hike.
Forex traders seem inclined to assume that the day of the rate hike is moving closer, at least for now. In the wake of yesterday's news on lower-than-expected unemployment, the pound gained against the US dollar and euro. "A large drop in the UK unemployment data is revitalising the pound,” writes the head of European hedge-fund sales at Mizuho Bank. “The U.K. will be the first major economy to raise rates. The pound is outperforming and will continue to do so.”
US Initial Jobless Claims (13:30 GMT): Today’s report on new filings for unemployment benefits will be closely watched after last week’s worrisome surge in new claims. It’s unclear if the previous jump to a two-month high is a dark sign for the labour market, which is why the crowd will look for clarification in the number du jour.
The optimistic explanation is that seasonal factors are to blame. That’s a reasonable argument, in part because the monthly non-farm payrolls data has been relatively strong lately. Employment increased by 200,000-plus in three of the past four months, or moderately faster than the sluggish pace in the spring and early summer. The claims data raises doubts about the trend, however—doubts that will persist if we see today's data stick close to last week’s estimate. Economists are assuming the opposite: the consensus forecast anticipates that weekly claims will fall to 337,000 from the previously reported 368,000 figure. If the prediction holds up, we’ll have a stronger case for thinking that the trend in payrolls is accurate and that the economy’s creating jobs at a slightly faster rate these days.
US Existing Home Sales (15:00 GMT): Yesterday’s bullish news on housing starts sends a strong signal that the residential real estate market is still growing at a healthy clip. New residential construction surged to a five-year high in November, encouraging analysts to upgrade their economic outlook for this sector. The upbeat report also suggests that the modestly higher interest rates of late haven't damaged the recovery. The 30-year conventional mortgage rate has increased to roughly 4.4 percent (based on the national average), up about 100 basis points since the spring. The question is whether existing home sales will tell a similarly cheerful story in today’s release?
Analysts have their doubts. Existing sales are projected to decline to a bit, falling to just over 5.0 million units (annualised) in November from 5.12 million in the previous month. The recent downtrend in applications for home mortgages also implies a weaker sales market at the moment. Applications have been trending lower for more than a month, according to the Mortgage Bankers Association. “Mortgage applications fell further last week, with the market index falling to its lowest level in more than a dozen years,” says the group’s vice president of research and economic in yesterday’s update. But in the wake of a strong rebound in home building activity, it’s premature to fear the worst—even if we see another dip in existing home sales. The market’s expecting that sales will stick close to the five-million mark, which is close to the highest rate in the last several years. Given the strength in yesterday’s report on housing starts, it would take a hefty downside surprise in today’s news on home sales to convince the crowd that the housing market generally is weakening.