Global Daily – Has spring arrived?

by: Aline Schuiling , Peter de Bruin

Global-Daily-Insight-21-March-2014.pdf ()
  • Eurozone construction sector flourished due to mild winter weather,…
  • …while data in the US suggests that the economy continues to shake off the bad winter weather
  • Indeed, we saw another sound reading in initial jobless claims, while the Philly Fed rebounded

Eurozone construction sector flourishes on mild winter weather

Eurostat published data on construction output in the eurozone on Wednesday. Total construction output rose by 1.5% mom, following a rise by 1.3% in December. The yoy growth rate jumped from -0.1% to 8.8%, which was the first positive growth number since December 2011. That said, the extremely mild winter weather seems to have had a significant upward impact on the sector, which is still being weighed down by housing market corrections in a number of countries and weak domestic demand in the eurozone as a whole. Indeed, sentiment in the construction sector as measured by the European Commission was still well below its long term average value in  February and at levels consistent with mild contraction in the sector. The view that weather influences had a significant impact on the eurozone economy this winter, was confirmed by sharp drops in energy production. Electric power generation and electricity and gas supply plummeted in December and January, recording contractions of 2-2.5% mom in each month, while mining and quarrying of crude petroleum and natural gas dropped by more than 6% in December and more than 7% in January. Consequently, the impact of weather conditions on total GDP growth are more moderate than the surge in construction output alone suggests.

Initial jobless claims suggest a stronger gain in employment in March’s official labour market report…

Meanwhile in the US, the data suggest that the economy continues to shake off the harsh winter weather. Indeed, although initial jobless claims rose by 5K to 320K in the week ending March 15, this kept the series on a gradual downward trend. What is more, this week’s claims covered the survey period for March’s official labour market report and compared to a month ago we saw a modest improvement in claims, with initial jobless claims falling from 334K to 320K. Together with our expectation that we are likely to see some payback for the soft pace of hiring in the past months, this suggests that we are going to see a noticeably uptick in hiring in March. Indeed, we expect to see a 225K increase in payrolls in that month, following a 175K gain in February.

…while the Philly Fed bounced back into positive territory…

Adding to the view that the harsh winter weather’s impact is gradually but steadily fading was the rebound in March’s Philadelphia Fed index to 9, up from -6.3 in February. This brought the index back to levels that we saw in January and together with the strong rebound in manufacturing production in February suggests that the underlying trend in the industrial sector has not changed due to the winter weather. Indeed, the prospects for the industrial sector in the US, supported by rising final domestic demand growth, continue to look very sound, in our view.

…though existing home sales continue to struggle

On a less optimistic note, existing home sales dropped by 0.4% to an annualized 4.60 million units in February, which was 7.1% lower than the level of sales recorded a year ago. According to the National Association of Realtors, conditions were largely the same as in January, with sales struggling to recover due to adverse winter weather, restrictive mortgage lending conditions, less favourable housing affordability and tight inventory. The latter rose by 6.4% to 2 million units, though that only represents 5.2 months of supply, given February’s sales pace. This is still considerably lower than the 8 month threshold below which house prices, historically, tend to rise. As such, we continue to expect to see increases in house prices this year, though the pace is likely to be more modest than last year, when house prices surged.

daily 21 March