Thursday, 07 July 2005 | Printer Friendly | Email Article | RSS Written by DailyFX Research Team [email protected] 1) Japanese Overall Household Spending 2) German Trade Balance 3) German Industrial Production 4) Canadian Net Employment Change 5) Change In Non-Farm Payrolls 6) U.S. Consumer Credit Japanese Overall Household Spending (MoM)(May)(5:00GMT, 1:00EDT) Consensus: 0.2% Previous: 1.0% Outlook: Japan’s consumers were less pessimistic for the second consecutive month as the outlook for wages and employment improved leading to a positively biased release for the report. The consumer confidence measure rose from 47.4 to 48.3 in May. Better job prospects are encouraging households to spend more as firms are reporting higher quarterly income. Consumer spending accounted for half of Japan’s 5.3 percent annualized growth rate in the first quarter 2005, and economists expect strong spending to continue bolstering economic growth. Overall gains in household spending may be tempered, however, as workers’ household spending shrunk 1.4 percent in May after the 3.6 percent gain experienced in April. Previous: Overall household spending gained 1 percent in the month of April, but household spending fell 3.0 percent compared to the same period last year. The number came of little surprise, as Japanese numbers have generally been improving on a more short term basis while its economy continues to recover from its skid in the fourth quarter of 2004. Accounting for over 50 percent of the Japanese economy, household spending must improve if the Japanese economy is to grow for the remainder of 2005. German Trade Balance (MAY) (6:00GMT, 4:00 EDT) Consensus: 13.5B Previous: 12.7B Outlook: The German trade balance is expected to show a surplus of 13.5 billion, up from 12.7 billion in April due to the weakness in the euro that should drive up exports. Lower oil prices during the month of May will also contribute by bringing down import figures. Germany’s economy depends on exports, which make up about a third of gross domestic product, and remains ever more important as unemployment still sits near a post-World War II high of 11.7 percent with the economy struggling to stabilize. However, some recent indicators have offered some optimism to the economic upside, as German factory orders rose more than expected in May, up 2.7 percent from April. Additionally, German business confidence rose for the first time in five months in June to 93.3 from 92.9, measured last week by the IFO survey. Previous: The trade balance dropped to a low for 2005 last month to 12.7B from 16.3B in March. Exports from Germany unexpectedly dropped in April for the second month in three as global economic expansion slowed, declining 0.4 percent after they were expected to gain 0.6 percent. Imports rose substantially compared to exports, up 3.8 percent. Additionally, consumer spending on domestic goods remained slow as unemployment rested at 11.8 percent and oil costs began rising over $50 a barrel. German Industrial Production (MoM)(May)(10:00GMT, 6:00EDT) Consensus: -0.4% Previous: 1.3% Outlook: German industrial production is expected to have declined 0.4% in May. The overall economic weakness can be seen through the recent PMI survey and softer manufacturing orders reported in the latest Ifo survey. Subsequently, the high number of holidays in the month of May could have negatively impacted production. However, with current sentiment leaning towards a positive bias, displayed through the most recent figures, experts are not ruling out an upside surprise. Higher regional retail sales and factory orders figures were seen in the month and may contribute substantively to a higher figure. Previous: Industrial output in Germany, Europe's largest economy, rose for the first month in three for April as construction and manufacturing improved. Economists expected output to rise 0.5 percent, but the result was more than double that figure, a 1.3% rise. However, foreign orders to German factories fell the most in 10 months in April. Construction surged 18.6 percent, recovering from a slump in the previous two months and driving the overall index higher. Canadian Net Change in Employment (JUN)(11:00GMT, 7:00EDT) Consensus: 19,000 Prior: 35,400 Outlook: Analysts expect the Canadian job creation growth to slow. However, estimates still show optimism in overall economic growth. Its economy added 35,400 jobs in May, the highest total since October 2004. The Ivey Purchasing Managers Index unexpectedly improved on the month, moving from a reading of 62.0 to 63.3 in June, suggesting that managers expect higher production in the coming months. This could be suggestive of an overall bullish signal for employment levels as manufacturers add to meet potential demand, continuing the trend. A possible complication could come from skyrocketing oil prices. While Canada traditionally benefits from high oil prices, since it is a net exporter of the commodity, Canadian industry and manufacturing could feel the pinch as their input prices could be on the rise. Any significant changes in net employment could spark speculation on the outcome of next week’s Bank of Canada interest rate release. Traders trust that strong Canadian growth will eventually lead to central bank rate increases. Prior: The Canadian economy added an impressive 35,400 jobs in May, underlining the strength in economic growth. This was an improvement over April’s 29,300 net change as producers may be adding to labor forces in anticipation of continued growth expectations. Bolstering the notion was the recent monthly increase in output, 0.4 percent for the month of April. With expectations higher and recent releases optimistic, the additions lend to mounting speculation of near term central bank rate hike considerations. U.S. Nonfarm Payrolls (MoM) (JUN)(12:30 GMT, 8:30AM EDT) Consensus: 198K Previous: 78K Outlook: Change in nonfarm payrolls is expected to have made a return to 6 figures in the month of June with a reading of 198,000 new jobs. This would be more than twice the number reported last month and also above the 2005 average of 180,000. The unemployment rate is likely to stay unchanged at 5.1%. Recent economic resilience in the face of high energy prices may have offered reassurance of buoyant demand to companies. Although wages increase, with firms paying more to keep up the current level of hiring, it is coming back to them in the form of solid consumer spending. June retail sales are expected to post the strongest year on year gain in four months. This produces evidence that service industries are healthy enough to be able to make up for the expected job losses in manufacturing. Also supportive of a high nonfarm payrolls number are June’s jobless claims data. Initial claims have been declining and staying below the 4-week moving average for the last three weeks of June while continuing claims have also remained low. The only negative employment data for June was Challenger’s layoff intentions count which reached the highest level in 17 months. The impact of the layoff announcements usually takes place anywhere from the time of announcement to a few months in the future. Previous: In May, the economy only generated 78,000 new jobs, the smallest increase since August 2003. This figure was less than half the expected change of 175,000. Service sector firms only added 64,000 jobs, while 7,000 were cut from manufacturing companies. Remaining one of the weakest sectors in the economy, manufacturing currently shows net job losses in 8 of the previous 9 months. With average hourly earnings and labor costs still rising, companies are forced to hire less, especially since energy prices are also elevated. Meanwhile, despite the low change in nonfarm payrolls, the unemployment rate was actually better than expected and declined to 5.1%. The divergent report gave support to both sides of the interest rate debate. Although, keep in mind that policy makers tend to pay more attention to the unemployment rate, which shows continued strength, rather than the more volatile nonfarm payrolls number. U.S. Consumer Credit (May)(19:00 GMT, 15:00 EDT) Consensus: $4.5 billion Previous: $1.3 billion Outlook: The market expects the dollar value of consumer credit outstanding to post a big increase in May due to an overall growth in economic activity. However, vehicle sales fell to a 16.67 mln unit pace in May, their slowest in three months as retail sales data noted a 1.6% decline in auto dealer sales suggestive of a lower-than-expected credit figure. In the first three months of this year, US consumer credit increased by a revised annual rate of 4.5 percent, compared with a stronger 4.9 percent in the same quarter of last year. Ultimately, recently higher short term interest rates may be dampening continues spurs in consumer lending. Previous: Americans increased their borrowing for auto loans and other types of consumer debt at an annual rate of 0.7 percent in April, the slowest increase in five months. The Federal Reserve reported that the April increase represented a rise in consumer credit of $1.26 billion, significantly below the $7.5 billion increase that many analysts had been expecting. In April, revolving credit such as credit cards edged down, and nonrevolving credit (car loans, etc.) posted a modest gain. Total consumer debt now stands at a record level of $2.13 trillion. The Fed's consumer credit report does not cover loans secured by real estate.