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US: Leading indicator falls more than expected

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US: Leading indicator falls more than expected

The claims were again somewhat lower in the week of March 17 at 316K compared to 320K in the previous week. The continuing claims fell too from 2570K to 2501K in the week of March 10. The latest claims indicate that even if there is some easing in labour market conditions it is going very slowly.

In February, the leading indicator fell 0.5% compared to an expected 0.4%. The drop comes on the back of an already downwardly revised ??“0.3% in January, previously reported as a slight increase of 0.1%. This will almost certainly put the Q1 leading index in negative territory compared to a year ago, which will be the first negative outcome since the 2001 recession. The coincident and lagging indicators however posted a slight increase in February.

EMU: Belgian business confidence falls

In March, Belgian business confidence fell to 1.4 from 3.5 in February, the fifth decline in six months. Hence, even while the index remains at rather elevated levels, the decline confirms the weakening trend since the third quarter of 2006. The decline was mainly due to the manufacturing sector, but sentiment also eased in the construction and services sector. Trade however bucked the downtrend. The weakening in the manufacturing sector does not bode well for the other euro business sentiment indicators and may point to some moderation in the growth momentum in the euro zone. While this should not immediately refrain the ECB from raising rates further, it needs closely monitoring, as growth in the US is also slowing.

Other: Strong UK data support further rate hike

In the UK, retail sales jumped 1.4% M/M higher in February following the unexpected drop of 1.5% M/M in January leaving the underlying robust trend intact. The volume of retail sales in the three months December to February was 1.1% higher than in the previous three months. This follows 1.0% growth in the three months to January and compares with an increase of 0.3% at the same time in 2006. Annual sales growth reached the highest level since December 2004 at 4.1% Y/Y.

The CBI industrial trends survey was also strong providing an upbeat picture of the manufacturing sector. The order and price balance rose to a 12-year high showing sustained strong growth and increasing pricing pressures.

On the back of the higher than expected CPI data for February, the strong retail sales and CBI industrial trends survey provide some additional ammunition to the hawks to back a rate hike in the coming months. As such, a rate hike to 5.50% in April or more likely May is still expected, despite the dovish Minutes of the March meeting.