Consumer Spending in U.S. to China Manufacturing: Global Economy

American consumer spending probably continued to recover in February from the slump caused by colder temperatures and snowstorms, while U.S. factories received more orders for big-ticket goods, economists project reports will show this week.

Consumer-price data out of the U.K. and Japan will probably show inflation remains below the goals of the countries’ central bankers. A persistent slowing in the costs of goods and services raises the risk that economies slip into a reinforcing deflationary spiral of falling prices as consumers and businesses put off purchases and investment.

In Germany, a report on business confidence this month will probably show the extent to which developments in Ukraine and Crimea affected Europe’s biggest economy.

Other data may add to evidence that growth in China is cooling: manufacturing in the world’s second-largest economy probably shrank for a third month in March.


-- Household spending in February increased 0.3 percent in February after a 0.4 percent gain the prior month, according to the median forecast in a Bloomberg survey of economists ahead of the March 28 figures. A report on retail sales earlier this month showed demand at department stores, Internet retailers and sporting-goods outlets improved. The report for January showed the biggest increase in services spending in more than 12 years, reflecting a jump in estimates of Medicaid benefits and enrollments in health-insurance exchanges, while Americans spent less on durable goods and non-durables.

-- “We expect consumer spending will strengthen as wealth increases and the pace of wage growth quickens,” said Ellen Zentner, a senior economist at Morgan Stanley in New York. “Discouraged workers continue to decline, the unemployment rate is coming down,” she said. “That will be your upward driver for growth momentum in wages.”

-- “A shorter workweek, possibly reflecting the influence of inclement weather, is likely to restrain the wage and salary component of personal income,” Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York, said in a research note. “On the spending side, an uptick in vehicle sales suggests some pickup in outlays for durable goods, and moderate spending in key retail areas should support a small advance in outlays for nondurable items. Outlays for services, specifically in the health-care area, could move higher again after a surge in January, as individuals utilize newly acquired medical insurance.”


-- Orders for durable goods climbed 0.7 percent in February after declining 1 percent a month earlier, based on the median estimate in a Bloomberg survey before a March 26 report. Bookings for capital goods excluding aircraft and military hardware are projected to rise 0.5 percent after a 1.5 percent gain in January.

-- “Some of the biggest bull cases for the economy hung their hat on greater corporate investment, which should in theory come through in the non-defense ex-aircraft capital goods orders results,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia. “The real benefits of capital investment would show up slowly, but growth in February would be a good sign for second-quarter GDP numbers.”


-- Germany’s Ifo institute releases its March gauge of business confidence in Europe’s largest economy on March 25 in Frankfurt. The figure, projected to decline to 110.9 from 111.3 in February, will show the extent to which geopolitical events are weighing on sentiment.

-- “The next two weeks will give a first flavor of the impact from the current Crimean crisis on the euro zone,” according to a report by ING Groep NV, which forecasts a decline to 110.8. “Expectations will have weakened as result of new uncertainty.”


-- Consumer prices in the U.K. probably increased in February from a year earlier at the weakest pace since October 2009. Inflation slowed to a 1.7 percent rate from 1.9 percent in January, according to a Bloomberg survey, moving further away from the Bank of England’s 2 percent target. The Monetary Policy Committee has warned that a further appreciation in the pound could add to restraint on price growth, while Citigroup Inc. forecasts that the inflation rate may fall to as low as 1.4 percent later this year.

-- “Falling import prices and a reduced boost from tax and regulatory effects are likely to keep inflation below target this year and, on average, in 2015,” said Citigroup economists including Michael Saunders in London. “With lower inflation and the tightening labor market, trends in household real wages and real incomes look much better.”


-- Manufacturing in China probably contracted for a third straight month in March, a report on March 24 is projected to show. The preliminary reading for the Purchasing Managers Index released by HSBC Holdings Plc and Markit Economics will be little changed at 48.7 after a final February figure of 48.5, according to the Bloomberg survey median. Readings below 50 signal contraction.

-- “Without policy responses, there would be a real risk for growth to slip to 7 percent or even lower, threatening labor-market stability,” economists at HSBC said in a report. “So it is better for Beijing to act sooner than later. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.”


-- Japan’s core consumer-price index, which excludes fresh food, probably rose 1.3 percent in February from a year earlier, matching the previous two months as the biggest gain since 2008, a Bloomberg survey showed ahead of a March 28 report. The figures compare with the Bank of Japan’s 2 percent goal for inflation. Meantime, consumer demand cooled last month. Retail sales rose 0.1 percent after a 1.6 percent January advance that was the biggest since August, economists project figures to show the same day.

-- “Critical to the BOJ’s monetary policy outlook this year will be how inflation evolves given the central bank is committed to achieving its 2 percent target by fiscal 2015,” economists at Australia and New Zealand Banking Group Ltd. said in a March 20 report. “Although inflation and inflation expectations have lifted sharply over the past year, much of this has been owing to the yen’s weakness and thus is unlikely to be sustainable.”


-- Argentina’s statistics institute on March 27 will probably report gross domestic product expanded 2.7 percent in the fourth quarter from the prior year as the second-fastest inflation in Latin America reduced purchasing power, according to the Bloomberg survey median. If GDP climbs more than 3.22 percent, the government has to pay warrants that were issued as part of debt restructuring in 2005 and 2010.

-- “If you look at available private statistics, they all indicate that growth was around 3 percent in 2013,” said Maximiliano Castillo, director of ACM Consultores in Buenos Aires. “The economic reality in terms of growth last year suggests the coupon shouldn’t be paid.”

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