The main takeaway from last week, from a data perspective, is that the slowdown in domestic growth we saw in March is extending into April. Pretty much every data point from last week showed a slowdown in economic activity.
The Empire Manufacturing Survey and Philly Fed Index, two of the first data points from April, both missed expectations, and importantly the New Orders component for both declined, implying more weakness ahead.
The other two big data points of the week, Industrial Production and Housing Starts, also showed some moderation in the pace of growth, despite the headlines for both numbers beating expectations (IP was higher because of utility output, while housing starts beat because of multi-family starts, neither which are really positive).
Finally, jobless claims were “OK” but importantly they have broken the downtrend they were in throughout late February/early March, implying the positive momentum in the jobs market has stalled.
Finally, the most damaging data this week came on Monday, when Chinese GDP missed expectations, and industrial production and retail sales were also weak. Plus, housing prices continued to rise in major metropolitan areas, increasing the likelihood of more measures being announced to curb rising property prices.
Bottom line is that one of the major concerns of the market, and one of the reasons for the fall in equity prices this week, has been the return of another “Spring dip” in economic activity, and data this week only reinforced that fear.
The focus remains on global economic growth this week and by far the most important numbers will be the Flash Manufacturing PMIs out tonight and tomorrow. Chinese PMI comes tonight and the EU and US figures will be released Tuesday morning.
Even without the PMIs it is a relatively busy week from an economics perspective. The second most important number behind the PMI is Durable Goods, out Wednesday. Retail sales lately have disappointed, implying some softening in consumer spending, so business spending will be closely watched to see if it too is declining.
The first look at Q1 ‘13 GDP is Friday, although this number, which will be good, isn’t quite as important as you would think because the focus now is on the moderation of growth in March and now April (GDP reflects the entire quarter, so Jan/Feb will skew the number higher than what the economy is currently doing).
Weekly jobless claims will be watched to see if the downtrend from February/March can resume, and there’s existing and new home sales (Monday and Wednesday), which will give us a bit more color into the state of the housing market (the numbers should show continued strength in pricing and low inventories).
Internationally, away from the Flash Manufacturing PMIs early in the week, it’s somewhat quiet. There is a Bank of Japan meeting Thursday, but after the “shock and awe” from the April meeting, not much new is expected. UK GDP is released Thursday as well.
Bottom line is that economic growth remains the key issue in markets. The Flash manufacturing PMIs are by far the most important number of the week, and depending how they go, it may well decide whether this correction stalls or accelerates.