US: ADP and non-manufacturing PMI point to slight downward risks to Friday??冱 Payrolls report

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US: ADP and non-manufacturing PMI point to slight downward risks to Friday??冱 Payrolls report

In the US, the March ADP employment report showed private non-farm employment growing by 106K in March compared to an upwardly revised growth of 65K jobs in February. Employment in the service-providing sector advanced 128K, while employment in the goods-producing sector fell by 22K. The largest extent of the job growth was again seen in the small and medium sized business (124K), while larger business actually shed jobs (22K). Regarding, the Payrolls report on Friday, the current consensus of a job growth of 133K appears reliable taking into account the average job growth of around 25K in the public sector. The weaker report nevertheless puts the risk slightly on the downside.

In March, the non-manufacturing PMI failed to rebound following the drop in February and business activity actually declined further from 54.3 to 52.4, the lowest since April 2003. The new orders tracked the decline and lost one point to 53.8. The backlog of orders however rebounded to 52.5 from 47.0. In line with the manufacturing PMI, the prices paid component spiked higher in March to 63.3 from 53.8, which won??冲 make the task easier for the Fed. Regarding the payrolls, the employment component fell lower to 50.8 from 52.2. As such, in both the manufacturing as nonmanufacturing PMI the employment component declined putting the risk on the downside for Friday??冱 Payrolls report.

The factory orders rose a disappointing 1% M/M in February following a slight upwardly revised drop of 5.7% in January. The rebound in the factory orders was mainly due to the durable goods orders, which rose 1.7% M/M (first reported as 2.5%), as non-durables rose only a weak 0.2% M/M. Ex-transportation factory orders declined 0.4% M/M.

EMU: Services PMI stabilizes at high level in March

In March, the euro zone services PMI declined slightly to 57.4 from 57.5 in February. The three-month underlying trend however rose slightly to 57.6 from 57.5 in the previous month. The sub-indices showed a different picture, as outstanding (52.6 vs. 50.8) and new business (57.0 vs. 56.2) increased and employment even hit a 9- month high (54.6 vs. 54.0). The latter is a positive for the sustainability of the recovery. Among the price components, the input price pressures eased slightly (58.9 vs. 59.7), while prices charged increased (53.8 vs. 53.2). Within the euro zone, confidence improved in Germany (57.5 vs. 57.2) and France (59.2 vs. 58.9), but fell in Italy (54.1 vs. 56.2). The composite index combining the manufacturing and services PMI declined to 57.4 from 57.7 in the previous month.

The euro zone retail sales rose 0.3% M/M and 1.2% Y/Y in February compared to a sharp upwardly revised 1.1% Y/Y growth figure in January previously reported as ??� 0.1%. Consumer spending is likely to increase further in the coming months, once the German VAT increase has been digested and the labour market improvement raises income growth.

The German factory orders rose a very strong 3.9% M/M and 9.3% Y/Y following an already downwardly revised decline of 0.3% in January. The strong increase was mainly due to the foreign orders, which surged 6.8% M/M, while domestic orders rose a more moderate 0.9% M/M. This was mainly due to a surge by 6.9% M/M in the capital goods orders, while consumer and intermediate goods rose respectively 0.8% M/M and 0.7% M/M. The large difference between the categories may point to some big-ticket orders, which was confirmed by the Economics Ministry in Berlin.

Other: UK services PMI rebounds slightly

In the UK, the services PMI rebounded slightly from 57.4 in February to 57.6 in March. The overall report was however somewhat weaker, as the employment component fell to its lowest level since August 06 from 54.5 to 53.6 and the outstanding business to its lowest level since January 05 from 50.7 to 49.8. Incoming new business however increased from 56.8 to 56.8. At the same time, average prices charged continued to climb from 54.2 to 55.3, the highest since August 06, even while input prices eased slightly from 60.2 to 59.3. The rise in output prices will raise concerns within the BoE about the willingness of firms to hike prices to restore profit margins eroded by past increases in energy costs. This may already result in another rate hike tomorrow or at the next meeting in May, when the inflation report will be published.