Global Daily – Euro hard data still lagging soft data

by: Aline Schuiling , Maritza Cabezas

Euro Macro: Economic activity data in Q1 weaker than surveys – Industrial production in the eurozone disappointed in February. It declined by 0.3% mom, while the January growth rate was revised lower to 0.3% from 0.9%. Consequently, the three-month-over-three-month growth rate declined to zero in February, down from 0.9% in December. This implies that even if output were to bounce higher in March, the industrial sector grew more moderately in Q1 2017 than in Q4 2016. This would be much weaker than was suggested by surveys such as the manufacturing PMI and the European Commission’s sentiment index for the industrial sector, which both jumped higher between December and March. Other activity data published for January and February have also signalled weaker growth in Q1 than in in Q4. For instance the 3m-o-3m growth rate in retail sales declined to 0.3% in February, down from 0.8% in December. Part of this slowdown in retail sales seems to be compensated by accelerating car sales, but growth in these two components of private consumption combined still slowed down in the first two months of this year. That said, monthly data can be very volatile and are often revised. We think the outlook for GDP growth in the first half of this year still remains one of slightly higher growth than in the second half of 2016. We think that accelerating growth in exports and fixed investment should more than compensate for somewhat slower consumption growth. Overall, a weaker first quarter, may well be followed by a strong Q2. (Aline Schuiling)

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US Macro: Labour market tightening – The NFIB index released today, showed that the rebound reported at the end of 2016 was sustained in March. The index slipped slightly to 104.7 from 105.3 the previous month, but this still represents a strong reading. Sales expectations, which had been at very high levels for months cooled down a bit. Meanwhile March’s NFIB jobs report showed that despite the tight labour market, small business owners have plans to continue hiring. Fifty-one percent reported hiring or trying to hire, but 45% reported that there were few or no qualified applicants to fill the positions. However, the data for these surveys were collected before Congress failed to pass the bill to repeal Obamacare. Other reports related to the jobs market have been showing a mixed picture lately. March’s Markit Composite Purchasing Managers Index (services and manufacturing), released a few days ago, showed that business optimism slowed and that plans for job growth were a bit weaker. March’s nonfarm payrolls were weak, partly reflecting severe weather conditions and payback after a couple of very strong hiring. Meanwhile, weekly jobless claims, the filings of unemployment benefits, have been improving for quite some time. Overall, we think that the labour market will remain solid in the coming time. However, given the tightness of the labour market, we think episodes of slower hiring will not be atypical. (Maritza Cabezas)