ANÁLISE DE DADOS ECONÔMICOS - DESACELERAÇÃO EXAGERADA MEDOS AMERICANOS

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Friday, 27th May 2011

FEARS OF US SLOWDOWN OVERDONE

•The ISM and nonfarm payroll reports for May will provide an important steer for markets this week. We expect above-consensus outturns to help redress some of the recent concerns about the US growth outlook.

• Euro area peripheral tensions remain acute, but we believe are overdone. With Germany opposed to a debt ‘reprofiling’ in Greece, an easing in tensions may soon clear the path for a recovery in risk sentiment.

• Forward looking indicators dominate the UK calendar with the latest PMIs and Lloyds Business Barometer watched for their implications for Q2/Q3 GDP.

US non-farm payrolls (May): The recent patch of soft US activity data has raised the significance of Friday's report, as payroll employment is an important coincident indicator of economic activity and will provide a crucial guide to output growth in the quarter. Given this, together with the fact that it is notoriously difficult to forecast accurately, the outturn could have a major impact on financial market trends in the coming weeks.

We look for the creation of 210,000 new jobs, down from 244,000 in April, with the private sector adding 230,000 and government jobs declining for the seventh straight month. The consensus forecast is 195,000. After last month’s strong gain, another reading above 200,000 is likely to help redress some of the recent concerns about the strength of the US economy. If we are right, the payrolls number could precipitate a weakening in US (and by extension global) bond markets. Along with the headline payroll number, we forecast the unemployment rate to edge lower to 8.9% from 9.0%, but growth in average earnings expected to remain benign at 0.2% m/m.

US ISM manufacturing (May): Prior to the payrolls report, markets will be watching the ADP survey and the employment component of the latest UK manufacturing ISM. The ISM is one of the most timely US indicators with a good correlation with overall output growth. Recent Fed surveys suggest that the fast pace of growth in manufacturing activity slowed significantly in May. The Chicago PMI will provide a final chance for refinements but we expect the headline index to decline for the third straight month to 59.2 – the lowest since December 2010. Although the headline number is expected to be softer, a lot of bad news is already priced in following the collapse of the recent Philadelphia Fed, Empire and Richmond surveys. The ISM non-manufacturing index for May is also released this week, but not until after payrolls on Friday. We look for this to rebound from 52.8 to 55.0.

Lloyds Business Barometer: Our in house indicator jumped to an 11-month high in April. The Business Barometer general economy balance correlates well with UK GDP growth with a three to four month lead. The markets will be watching to see whether last month’s improvement was sustained and the implications of any change to the profile for GDP growth early in the second half.

UK manufacturing PMI, exports remain supportive: Manufacturing output has posted some of the economy’s strongest growth rates over the past year as it struggles to make up the ground lost during the recession (output is still 9% below the 2008 peak). Over recent months, however, there has been a noticeable softening in the trend, with the PMI dropping to 54.6 in April, its lowest since last September. Higher oil prices slowing global activity, supply chain disruptions from Japan and additional holidays are all likely to have taken their toll.

We forecast the headline manufacturing PMI to have dropped to 54.1 in May. Given the imperative of the UK economy to rebalance, the export orders index is likely to be singled out for particular attention. We expect this to remain robust, holding out the hope that net trade drives an improvement in the overall index over the coming months.

UK services PMI, small rebound? Given the size of the services sector, the UK services PMI is one of the most closely watched and timely economic indicators in the UK. In recent months, however, the PMI has been particularly volatile. In April, the headline index fell sharply, from 57.1 to 54.3, leaving it just below the average for the past three months.

Given the extent of last month’s fall, and the fact that new business accelerated in April, we are pencilling in a slight improvement for the PMI in May, to 54.8. Although we are slightly above the market consensus of 54.2, we accept that there are clear downside risks given the prevailing economic climate and the weakness of the recent Euro area PMIs. It should be noted, however, that the services PMI will not directly capture the weakness in consumer spending as it excludes retail services.

UK personal lending: underlying trend is weak: The BoE’s personal lending figures for April are likely to do little to boost hopes for household spending. Although we expect consumer credit to have picked up last month, this is likely to reflect no more than the temporary impact of the late Easter, the extended bank holiday and unseasonably warm weather. Such factors, however, are unlikely to have supported the mortgage data. The BBA reported a fall in mortgage approvals. We forecast approvals falling to 45,000 - close to December’s post recession low.

German unemployment (May): We look for a drop in unemployment of 40,000 in May. If realised, this would bring the fall in joblessness since the start of the financial crisis (in mid-2007) to around 850,000. The extent of this decline is largely a structural, not cyclical, phenomenon. But relatively recent survey evidence from purchasing managers also captures an improvement in labour market conditions. The employment components within both the manufacturing and services sectors, for example, have indicated significant expansion over the past year.

Euro area CPI (preliminary, May): May's preliminary euro area CPI is expected to remain unchanged at an annual 2.8% in May. While inflation expectations remain under control (with few signs of so-called 'second round' effects into nominal wages), there is no room for complacency with inflation running almost a full percentage point above the ECB's target of 'below but close to, 2%'. Looking slightly further ahead, there is a good chance that the ECB raises its projection for full-year CPI for this year from 2.3% in March towards 2.5% (and possibly above) at the next Governing Council meeting on 9 June.

China manufacturing PMI (May): The official PMI is forecast to have fallen further in May, to 52.0 compared to 52.9 last month. If realised, this would be the weakest in nine months. Power shortages and disruptions to supply chains due to the Japanese earthquake are likely to be attenuating the recent easing in industrial activity. However, we believe that the lagged effect of tightening measures taken by the authorities since October 2010 are likely to lead to a continued moderation in production in coming months.

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