In the euro area, the ECB meeting should confirm the central bank is in wait and see mode. The
few data releases should confirm the preliminary readings (on the decline) of the PMI indices,…..
Next week’s calendar of events and data releases will be a busy one in the United States. Data should indicate a stabilization in the pace of growth of economic activity, hindered by oil prices and the waning effects of very mild weather conditions in the opening months of the year. In March, the manufacturing sector ISM should stabilise, and the non-manufacturing index should correct after two consecutive increases. Auto sales are expected to be close to February’s high levels. The employment report should reveal a more moderate job trend compared to the previous three months, with unemployment stable at 8.3%. Construction spending is expected to be higher in February, on mild weather. The FOMC minutes should confirm the presence of a wide range of opinions on monetary policy strategy: the option of a new stimulus package should remain on the table, in line with Mr. Bernanke’s recent statements.
Monday 2 April
– The second reading of the March manufacturing PMI should confirm the flash estimate, with the index dropping to 47.7 from 49 in February. Both the French and German indices are expected to be confirmed on the decline; the first reading on peripheral countries (Italy, Spain, Greece, Ireland) should be confirmed at lower levels than in the region’s two leading countries. These PMI levels are compatible with a stagnation of GDP in the Spring.
– Italy. Based on provisional monthly data, unemployment may have risen further in February, to
9.3% in our estimation. The work force survey should highlight a marked increase in the jobless numbers, to 8.7% in Q4 2011 (with an upward revision of the Q3 figure).
Unemployment probably still hasn’t peaked At current levels, and may rise to close to 10% between the end of 2012 and the beginning of 2013.
– The unemployment rate in the euro area could have risen by a further tenth of a percentage point in February, to 10.8%. Although stable in Germany, the jobless rate could be up again in Italy, Spain, and France: therefore, it is still early days to observe an interruption of the deteriorating trend of the labour market in the euro area.
– Construction spending in February should be up by 0.8% m/m, after slipping by -0.1% m/m in January. The increase in housing starts since the start of the year points to a rise in spending on residential construction. Especially mild weather conditions are generally expected to have supported February figures.
– The March manufacturing ISM should come in broadly unchanged compared to 52.4 in February. To date, the regional surveys published have been mixed, with the Empire index showing an improvement, as opposed to declining Philly and Richmond Fed indices. The breakdown of survey data and other indicators shows that the pace of growth is stable, or slightly slowing. Surging oil prices, the waning of the positive effects of a particularly mild winter, and weakening global demand should result in an interruption of the ISM’s uptrend, albeit without signalling, at least for the time being, a clear trend reversal.
– Producer prices are expected to rise by 0.5% m/m in February (from 0.7% in January), once again driven by energy prices. The year-on-year trend would continue to slow, staying brisk nonetheless (3.4%). Based on our estimates, renewed tensions tied to commodity prices will keep the average PPI in 2012 above 3%.
– The minutes of the FOMC meeting in February will shed light on the dispersion of opinions on the risks weighing on the scenario and on monetary policy strategy. The minutes should confirm that stances within the Committee differed greatly in terms of the monetary policy scenario, as seems clear based on the recent speeches of Fed officials. Dudley ad Evans showed great openness to a potential new stimulus package, in line with Bernanke; on the other hand, Lacker, Plosser and Bullard were of the opposite opinion, and signalled the opportunity of starting a monetary policy reversal earlier than envisaged by the FOMC, and would support further interventions only in case of a share deterioration of the scenario. Lockhart’s position was intermediate. The main point, however, is that over a short period of time Bernanke has repeatedly offered an extremely cautious assessment of the economic scenario, and in particular of the improvement of the labour market, assuring that the option of more stimulus is “still on the table”. The minutes should reflect prevailing consensus on this position, over the opinions of the potential dissenters.
– Auto sales in March should be little changed at 14.9 mln ann., after rising sharply in the previous two months (15 mln in February). In March sales are traditionally supported by tax refunds; in recent months, higher gasoline prices have prompted an increase in demand for more efficient vehicles in terms of consumption. Auto sales are expected to continue supporting household consumption levels.
– The second reading of the March services and composite PMIs should confirm the preliminary
estimates at 48.7 (services survey broadly stable, composite index down from 49.3). These PMI
levels are compatible with GDP growth of around zero, therefore confidence indices are pointing to a stabilisation, but not year to a recovery, in economic activity.
– Retail sales are expected to be up by 0.4% m/m in February, from 0.3% m/m in January (a rate which in any case could be revised downwards). The reading would leave retail sales on course for a slight rebound (0.2% q/q) in Q1 2012, after the -0.8% q/q decline recorded over the three previous months. In any case, the trend of consumer confidence is still not pointing to a significant recovery in sales, at least not in the short term.
– Germany. Manufacturing orders could rebound by 0.7% m/m in February, after rising by +1.7% m/m in December. The trend would stay in negative territory both in year-on-year terms (-6.1%) and on a quarterly basis (-2.9% q/q in Q1, assuming a stabile trend in March).
In any case the data should confirm the resilience of foreign orders, from non-EU countries in particular.
– The ADP estimate of new non-farm payrolls in the private sector is expected to come in at 200k by consensus, down from 216k in February.
– The March non-manufacturing ISM should drop to 56.5 from 57.3 in February. Regional services surveys were mixed in March, with Richmond on the rise and Texas on the decline.
The ISM composite index has risen significantly in the past two months (from 53 in December 2011) and a correction would be physiological. Also, the February survey highlighted concern over surging energy prices and the possible negative effects on household spending. The prices paid component in February, at 68.4, was back to March-April 2011 levels. The historical relationship with the manufacturing ISM would imply a non-manufacturing index close to 54.
Thursday 5 April
– The ECB’s April meeting should prove rather interlocutory. The central bank will confirm that no further 36-month LTROs are on the cards, given the improvement in market conditions and the stabilisation of the macro scenario, albeit on modest levels. The ECB will also want to signal that a debate over the removal of extraordinary measures is still premature, as the underlying
economic situation remains fragile.
– Germany. After a volatile phase between the end of 2011 and the beginning of 2012 (December -2.6%, January 1.6% m/m), industrial output is expected to drop back in February (by -1% m/m based on our estimates). The year-on-year rate could fall into negative territory (to -0.2%) for the first time in over two years. In Germany as well the trend of industrial activity is still slowing, albeit less so than in the rest of the euro area.
– New non-farm payrolls are forecast at 190k in March from 227k in February. Private sector employment is expected to be up by 205k (233k in February). The pace of growth of demand is not consistent with monthly job growth stably above 200k. In February, job reduction in the public sector was far smaller than the average recorded in recent years, but this should not mark the start of an uptrend in the segment, in light of the still difficult situation of public finances at both the state and local levels. Also, the construction sector could correct again.
New jobless claims stopped dropping in March and stabilised at around 350k. The unemployment rate should be unchanged at 8.3% for the third month in a row, with the participation rate stabilising at 64% as in February. Underemployment readings should be little changed, as also the percentage of people unemployed for over 27 weeks (in excess of 40% since the start of the recession). Hourly wages are expected to rise by 0.2% m/m, after marking +0.1% m/m increases for four months. Data is expected to be in line with the scenario outlined by Mr. Bernanke, i.e. a stabilisation of the labour market’s pace of improvement.
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