Busy week in the euro area in terms of economic data releases, with the IFO, INSEE, ISAE and European Commission confidence surveys at the fore. The surveys should all confirm a slight improvement in expectations, as opposed to deteriorating views on present conditions…..
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In September, inflation is forecast to rise by four-tenths in Spain, on the back of the VAT rate hike, to drop by one-tenth in Italy, to 3.1% y/y, and by three-tenths in Germany, to 1.9% y/y. Inflation in the euro area is estimated at 2.4% y/y from a previous rate of 2.6% y/y. Economic data due for release in the United States this week are not expected to alter the overall picture of weak growth, despite the recovery of the real estate sector. In September consumer confidence is expected to return to June levels, and the Chicago PMI should move further down. In August, new home sales should show another solid rise, as opposed to a drop in durable goods orders. The final estimate of 2Q 2012 GDP should bring another downward revision, confirming the weakness of growth in the central months of the year.
Monday 24 September
Euro area
Germany. The IFO business confidence index is expected to improve moderately in September. The index could rise back to 103.0 from 102.3 in August, its lowest level since the beginning of 2010, supported by easing tension on financial markets. The recovery in confidence should mostly be due to the expectations component, which could rebound to 95.1, whereas the present situation component could be more affected by the effects of the current economic slowdown, staying stable in the 111 area (111.2 in August).
Tuesday 25 September
Euro area
France. The September INSEE business confidence index may drop to 87 from 90 in August. Despite easing tensions on the financial markets, factors of uncertainty linger, and will continue to weigh on the confidence of French enterprises, as proven by the sharp drop of the other sentiment index for the month (PMI manufacturing down to 42 from 46 in August). Persistently low confidence is at these levels is compatible with a stagnation of production activity and economic growth in the next few months.
Italy. In September, consumer confidence is expected to rebound moderately to 86.5, from 86 in August. Improved performances on the financial markets may have somewhat uplifted sentiment among households, although serious uncertainties, lingering on the labour market front, do not allow for a stronger recovery of the indicator. The current situation component could come in just higher than in August (at 94.3 from 94), while the overall expectations index is estimated to recover slightly, to 77 from 76.7. The level of consumer confidence is compatible with an ongoing contraction of consumption in the months ahead.
United States
Consumer confidence, as surveyed by the Conference Board, should be up in September to 65 from 60.6. The preliminary September University of Michigan index improved significantly, after declining sharply over the summer months, and climbed back to the same levels as in June. The Conference Board should also price in brightening confidence in the wake of the upswing of market indices. Confidence will stay compressed in any case, in light of the weak trend of employment and uncertainty tied to the impending fiscal cliff.
Wednesday 26 September
Euro area
Germany. September inflation should level off at 2%, from 2.1% in August; harmonised inflation, on the other hand, should come in at 1.9%. Both indices may be down by 0.1% on a monthly basis, thanks to easing pressures from the energy component. We expect German inflation to reach 1.2% y/y at the beginning of 2013.
United States
New home sales are expected to be up in August, to 385k from 371k in September. The builders’ confidence survey showed sharp increases in the current sales component in the summer months, and is pointing to an acceleration the sales trend, confirmed by data on housing starts.
Thursday 27 September
Euro area
Germany. The unemployment rate is expected to stay put in September at 6.9%, although the number of jobless workers may be up by 10k. Unemployment dropped to a historical low in August 2012, which should be confirmed in September, although the slowdown of the cycle is also affecting Germany and may start weighing on the employment trend as of the autumn.
M3 growth should keep accelerating in August (+3.9% y/y vs. a previous rate of 3.8% y/y), on the back of the steepening of the curve compared to July. The moving average could therefore rise to 3.5% y/y.
Italy. Business confidence may turn back down in September, albeit only marginally, and could slide to 86.6 from 87.2 in August. The index climbed back from the historical lows touched in May, but remains at extremely compressed levels, compatible with an ongoing contraction in productive activity and GDP growth in the quarters ahead.
The European Commission economic sentiment index is expected to drop marginally in September, to 85.8 from 86.1. The flash PMI estimate pointed to improved sentiment in manufacturing, as opposed to a deterioration in the services sector, in France in particular. Confidence in the retail and construction sectors should be unchanged, and consumer confidence should be confirmed at -25.9, as anticipated by the preliminary reading. Confidence in the euro area remains on very depressed levels, compatible with our estimate for a 0.3% q/q contraction in GDP over the summer, and near-stagnation in the closing months of year.
United States
The final estimate of 2Q GDP should bring a downward revision to 1.5% q/q ann. from 1.7% q/q ann. The revision should be tied to consumption, non-residential investments (especially structures), and exports.
Orders of durable goods in August are expected to have dropped by -5.5% m/m, driven down by the civil aviation component. Net of transport, orders are forecast to rise very modestly (+0.5% m/m). In August (and in the following months), orders in the defence sector should shoe a modest recovery, after contracting significantly.
Friday 28 September
Euro area
France. Consumption spending in July e August is expected to be down by 0.2% m/m and 0.1% m/m respectively, after rising by +0.1% m/m in June. If confirmed, the summer decline would leave the annual trend in negative territory (+0.2% in July and -0.4% in August), and the quarterly rate would be up, to 0.4%. The challenging economic environment, the fiscal consolidation process under way, and the seriousness of the labour market condition, do not allow for expectations of a recovery in consumption in the next few months.
In Spain, inflation is estimated at 3.1% y/y in September, from 2.6% y/y the previous month at the national level, due to a partial lag in the transfer of the 2% hike in VAT rates to end consumer prices. Residual effects of the indirect tax hike should also be visible at least in October as well, as many retailers have said they intend to wait before adjusting prices upwards. The VAT hike will weigh on the 2012 average by around four-tenths (2.6%), and on the 2013 average by around nine-tenths (2,8%).
Italy. Inflation should stay at 3.2% in September, in line with August (prices were probably stable in the month); harmonised inflation should also come in stable at 3.3% (+1.9% m/m). The price trend is expected to moderate in Italy as well, between now and the end of the year.
The preliminary estimate of September inflation in the euro area should be 2.4%, from 2.6% in August, resulting in a 0.1% m/m contraction in the price index; moderation should be guided by easing pressures from fuel prices. After peaking in the summer, inflation should slow and close the year at 2%.
United States
Personal spending in August is forecast to rise by 0.5% m/m: the change should largely be due to higher prices. In real terms, spending on durable goods should be up thanks to the positive trend of the auto sector. Personal income is forecast to be up moderately, by 0.2% m/m: earned income should be up by only 0.1% m/m, in light of weak employment report data on the number of employed workers, work hours, and wages. However, the other components of income should maintain a more sustained trend. The savings rate is expected to be down to 4% from 4.2% in July.
The Chicago PMI in September should drop to 52.5 from 53.1 in August. The message from all manufacturing surveys is homogeneous: activity is barely growing in the sector. Moreover, we expect the 4th quarter to show further weakness in the wake of the huge uncertainty tied to the fiscal cliff.
The University of Michigan consumer confidence index should correct marginally in September (final), to 78.5 from 79.2, after the rise recorded by the preliminary estimate. While the factors that have depressed confidence in recent months have not been removed (uncertainty over fiscal policy, persistently weak labour market, gasoline prices), the market upswing has helped contain their effects.
Appendix
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