Thursday's Numbers To Watch

Thursday is a busy day for economic news, including the August report on retail sales for the UK. Later, we’ll see new data for the UK CBI Industrial Trends Survey and US initial jobless claims. Keep in mind that the Swiss National Bank has a monetary policy announcement scheduled today at 07:30 GMT, followed by US updates on existing home sales, the Philadelphia Fed Manufacturing Index, and the Conference Board’s leading index—all arriving at 14:00 GMT.

UK Retail Sales (08:30 GMT): The market has expecting another month of growth for retail sales in Britain, and it’s not hard to understand why. Positive momentum has been evident in a range of economic indicators in recent months, including retail sales. Indeed, consumer spending has increased in each of the past three months through July while the year-over-year rate has been higher in five of the past six updates. Today’s release for August is expected to show more of the same: the consensus forecast sees a monthly gain of 0.2 percent and an annual 3.4 percent rise. The upbeat outlook for today’s release also draws support in the August update of a private-sector measure of retail spending in Britain—BRC-KPMG Retail Sales Monitor, which reflected broad-based growth last month.

As the case for optimism strengthens for Britain’s macro outlook, the market will increasingly focus on what it means for monetary policy, namely: When will the Bank of England (BoE) raise interest rates? Yesterday’s monthly release of BoE minutes clearly shows solid support for keeping the policy rate at the current 0.5 percent for the foreseeable future. With trailing inflation remaining “in line with the committee’s and market participants’ expectations,” and the outlook for no more than a marginal rise at present, the BoE advised that it still assumed that it would achieve its two percent inflation target in the medium term. The question is whether stronger economic growth will change this calculus? For now, no. But to the extent that the incoming data remains positive, the central bank and the financial markets will become increasingly sensitive to any upside surprises in the inflation data.

UK CBI Industrial Trends Survey (10:00 GMT): Manufacturing activity last month posted its strongest growth in two years, according to the August update of this widely followed survey of executives in this sector. Today’s release is expected to bring yet another moderate improvement. The consensus forecast anticipates a rise to 3.0 from the previously reported zero for this benchmark from the Confederation of British Industry (CBI).

If the optimists are right, and today’s news on retail sales (see above) and the CBI data bring more encouraging news, we’ll have a deeper degree of evidence that Britain’s economy is on a sustainable recovery track. That’s hardly news, but a double dose of fresh data on this front may convert the last bastion of sceptics. To cite one of the more colourful metaphors of late on matters of the British business cycle: "The UK economy has finally reached its Costa Concordia moment," says the mayor of London in reference to the recent uprighting of the cruise ship that ran aground off the coast of Italy. "I think you would agree that the keel is off the rocks and at last we can feel motion, relief."

US Jobless Claims (12:30 GMT): The key issue in today’s report is looking for guidance on judging the surprisingly steep drop in new claims in the previous update. The fall in new filings for jobless benefits in the week through September 7 pushed this leading indicator down to its lowest level in seven years. But the latest drop is reportedly a byproduct of a computer glitch in two states. A week later, analysts think we’ll see a sharp increase in today’s number as the data moves back in line with reality. The consensus forecast calls for a large increase in claims to 341,000, or up 49,000 from the previous report.

On its face, such a big increase looks ominous. But if the gain is largely tied to a game of playing catch-up with the data, the reversal may not be so dark after all. Nonetheless, revision risk remains high today, and perhaps for the next week or two as the numbers are sorted out in the wake of last week’s statistical malfunction. But let’s assume that today’s number rises to 341,000 and it reflects reality. In that case, it’s fair to say that jobless claims haven’t changed much since mid-July. But it’s reasonable to assume that the real trend will remain shrouded in an unusual degree of mystery until we go through a few more weeks of revisions. Meantime, a jump in today’s number will have more bark than bite until we see how the trend fares in the weeks ahead. On that note, the critical factor to monitor remains the year-over-year change for this series. The good news is that even if we see an increase to 341,000 in today’s release, that still translates into a 10 percent decline versus the year-earlier level, or roughly in line with the rate of descent in recent history.