Analysts at Nomura offered their outlook the week ahead’s key economic scheduled events.
Key Quotes:
United States | Data preview
We expect healthy gains in April retail sales and industrial production.
NY Fed Survey of Consumer Expectations (Monday): Inflation expectations in the March Survey of Consumer Expectations remained essentially unchanged at the oneand three-year horizons, at 2.8% and 2.9%, respectively. The recent rise in oil prices could raise short-term inflation expectations as consumers see higher prices at the gas pump. However, persistent increases in longer-term inflation expectations seem unlikely.
Retail sales (Tuesday): Excluding sales of autos, food, gasoline and building materials, core (“control group”) retail sales likely rose a steady 0.3% m-o-m in April. Retail activity appears to have been steady despite colder-than-usual weather in some regions in April. Employment in the core retail sector rose steadily. Various consumer and business surveys point to continued momentum in business activity led by robust consumer demand. Among the non-core components, sales at gasoline stations likely rebounded strongly, reflecting changes in energy prices in the month. For sales at auto dealerships, we expect a sharp 0.7% decline as April vehicle sales data point to weaker vehicle purchases by consumers. For ex-autos retail sales, we expect a 0.4% m-o-m increase. Put together, we forecast a 0.2% m-o-m increase in total retail sales.
Empire State survey (Tuesday): We forecast 14.0 for the Empire State business conditions index for May. Businesses remained optimistic on balance in April but less so compared to earlier this year. Many business contacts for incoming surveys have indicated concerns over tariffs and risk of escalation in trade tensions. Although we think business momentum remains intact, driven by stable domestic and foreign demand, continued uncertainty over trade policies could dampen business sentiment further.
Business inventories (Tuesday): Business spending on inventories likely slowed in March from its pace earlier this quarter but remained steady. Manufacturing inventories grew 0.3% m-o-m in March after rising 0.4% in February. Wholesale inventories were up 0.3% m-o-m in March, but gains in January and February were revised down, implying that the inventory accumulation in Q1 was modestly weaker than the BEA’s assumption. The wholesale inventory of metals and minerals excluding petroleum rose sharply by 4.5% m-o-m. This jump likely reflects a pickup in domestic metal prices, partly driven up by tariffs on steel and aluminum imported into the US. Advance retail inventory data were weak but appear consistent with a pickup in sales in March. Altogether, business inventory growth in March was likely more modest than in January and February.
NAHB housing market index (Tuesday): Despite strong demand, the NAHB housing market index fell to 69 in April, from 70 in March, driven by modest declines in current and next six months sales. A strong job market and steadily increasing household income will likely support consumer demand. However, supply-side constraints continue to weigh on home builders’ sentiment. It appears rising material costs remain a significant concern. Home builders expressed concerns over rising lumber prices, partly driven by US tariffs on Canadian softwood lumber. For the May report, we expect a steady reading of 69, unchanged from the estimate in April.
Housing starts (Wednesday): Housing starts likely fell 4.1% m-o-m to an annualized rate of 1265k in April. Although we think that consumer demand remained steady, transitory factors likely lowered total housing starts. We expect a modest decline in single-family housing starts, reflecting a slowdown in building permits for single-family housing construction in March and colder-than-usual weather in April. Volatile multifamily housing starts could decline sharply in April following a 14.4% m-o-m jump in March. In addition, we expect a 2.0% m-o-m decline to an annualized rate of 1351k in housing permits in April. Residential construction activity likely remained intact in April, but colderthan-usual weather in some areas may have lowered permits.
Industrial production (Wednesday): We forecast a 0.6% m-o-m increase in industrial production in April following a steady 0.5% m-o-m increase in March. We expect ex-auto manufacturing output to increase by 0.7% m-o-m in April, which fell 0.1% m-o-m in March following an upwardly revised 1.0% m-o-m gain in February. We think that the decline in factory output in March was transitory and maintain our optimistic manufacturing sector outlook. Further, data on aggregate hours worked in the manufacturing sector point to a strong rebound activity in April. Looking ahead, tax policy changes, including favorable expensing provisions over the near term, along with synchronized global growth, will likely provide support for business investment, while increased trade concerns have the potential to dampen business sentiment significantly. However, based on industry data, auto assemblies likely declined sharply following a firm increase in the previous month. In addition, considering continued growth in oil and gas extraction, we expect a steady gain in mining sector output. Utilities sector output likely rose firmly as April was colder than usual. On the downside, autos output may have slowed in April after a solid 4.3% m-o-m jump in March.
Initial jobless claims (Thursday): Despite some holiday-related choppiness in initial claims data over the past few weeks, we continue to expect jobless claims to remain low in light of a strong economic outlook. Heading towards Memorial Day and the end of the school year in the US, we could see additional volatility over the next month.
Philly Fed survey (Thursday): We expect a reading of 20.0 for the Philly Fed survey in May. Similar to our forecast for the Empire State survey, we expect a slight pullback in sentiment as businesses still appear to be uneasy about recently-enacted steel and aluminum tariffs with prospects of a further escalation in trade tension with China. Despite the negative effects of recent US trade policy announcements, manufacturing activity should remain healthy over the near term.
Euro area | Data preview
The week ahead Euro area April final inflation and UK labour market report are in focus this week.
Euro area Industrial production, Mar (Tues 15 May): We forecast euro area industrial production to increase by 0.8% on a month-on-month basis in March. Over the past week we have seen Italian, German and Spanish industrial production numbers surprise the consensus on the upside, and we expect the regional industrial production data to reflect this unexpected improvement.
Labour market report, May (Tues 15 May): When it comes to average earnings growth our focus tends to be on the private sector ex-bonus series which grew by 0.2% m-o-m in February to bring the annual rate to 3% in last month’s report (though the annualised 3-month and 6-month rates fell). Employment and unemployment may not have had sufficient time to respond to the slowing in the economy over the past two months and may only do so in the event such weaker data becomes more persistent.
Germany ZEW Index, May (Tues 15 May): Reflecting the recent improvement in market sentiment and some new-found stability in the recent German Sentix survey, we expect the ZEW economic expectations index to improve very modestly to -5.4 in May after -8.2 in April.
Japan | Data preview
We expect economic stagnation overseas to put the brakes on real exports and unfavourable weather conditions to depress real consumer spending in Q1 2018.
First set of preliminary estimates for Q1 2018 real GDP (Wednesday): We estimate Q1 (January-March) real GDP figures will show a decline of 0.6% q-o-q annualized (-0.1% q-o-q), which would be the first such decline since OctoberDecember 2015 (nine quarters). We think domestic demand was weak overall in January-March. We expect overseas demand, which has been fueling real GDP growth, to slow for now. Based on Ministry of Finance trade statistics and the BOJ’s export and import price data, we estimate January-March 2018 real exports grew by 0.3% q-o-q, which is considerably weaker than the 2.5% q-o-q growth in October-December 2017 (adjustments for seasonal factors and prices are by Nomura). Economic conditions overseas appear to have slowed overall in January-March, with PMI indicators in China and Europe falling off from the January peak and the March PMI in the US below February levels. We think these conditions contributed to a slowdown in Japan’s real exports. We estimate real consumer spending fell quarter-on-quarter. The Ministry of Internal Affairs and Communications’ Family Income and Expenditure Survey suggested that real consumer spending was strong in January and February, but the Ministry of Economy, Trade & Industry’s Current Survey of Commerce showed a large drop of 1.6% q-o-q in January-March for real retail sales (adjustments for prices by Nomura). In addition, the Cabinet Office’s Economy Watchers Survey and consumer confidence index both indicated a deterioration in consumer sentiment. We think adverse weather conditions led to sharp price increases for fresh food, depressing consumer sentiment and having a negative impact on consumer spending. We think real housing investment and real public spending also continued to weigh on real GDP, but that real capex in the private sector remained on a modest growth trajectory. In the BOJ Tankan (March 2018), the outlook for FY17 capex plans (including software but excluding land) remained high, supporting the view that corporate capex appetite was favourable. We think real GDP growth was negative for the first time in nearly two years, but we see as our main scenario that the drop in real GDP will be limited to January-March 2018. Starting in April-June, we expect expansionist fiscal policies in the US to support US domestic demand, which should underpin the global economy. We expect the Japanese economy to resume growth in April-June, in line with these developments.
Asia | Data preview
The week ahead We expect the April data from China to show continued stable growth.
China: We expect industrial production growth to rise modestly in April from a sevenmonth low in March, as production returned to full scale after the prolonged lunar new year holidays into March. Fixed asset investment growth is likely to continue its downtrend and slow further to 7.4% y-o-y ytd, in our view. We expect retail sales growth to moderate in April, following the usual pattern of a slowdown from March to April.
Share
