Next KBC Sunrise will be published on the 6th of June 2011

Finally, also the Chicago PMI surprised on the downside of expectations, falling sharply in May. The headline index dropped from 67.6 to 56.6, the lowest level since November 2009, while the consensus was looking for a more moderate decline (to 62.0). The details confirm the bleak picture as production (56.0 from 70.0), new orders (53.5 from 66.3) and order backlogs (51.7 from 62.4) dropped sharply, while employment (60.8 from 63.7) and supplier deliveries (63.8 from 68.4) showed a more moderate decline. Only inventories rose in May, from 53.5 to 61.6, while prices paid eased slightly from 81.8 to 78.6. After already extremely weak regional business confidence indicators from NY, Philadelphia and Richmond, this outcome provides further evidence that the US economic recovery is slowing, which will probably be confirmed by the ISM reading today.

Conference Board’s consumer confidence unexpectedly deteriorated in May. Consumer confidence fell from an upwardly revised 66 to 60.8, while the consensus was looking for an increase to 66.6. The details show that sentiment about both the present situation (39.3 from 40.2) and expectations (75.2 from 83.2) weakened in May. Also the labour market differential deteriorated, falling from -37.3 to -38.3 and the income index weakened from 2.3 to -0.4. This outcome is in sharp contrast with the earlier released consumer confidence indicators, which showed an improvement in May. Weakness might be due to bleak labour market situation and higher prices, which are squeezing household budgets.

The decline in S&P Case Shiller house prices accelerated further in March. On a yearly basis, the decline rose from -3.35% Y/Y to -3.61% Y/Y, while the consensus was looking for a figure of -3.40% Y/Y. On a monthly basis, house prices fell for the ninth consecutive month by 0.23% M/M. The index fell to its lowest level in since 2003, providing further evidence that the US housing market remains depressed.


EMU: inflation eased in May

In May, euro zone annual inflation fell. According to the first estimate, euro zone CPI inflation dropped from 2.8% Y/Y to 2.7% Y/Y, while the consensus was looking for an unchanged reading at 2.8% Y/Y. Details are not yet available, but part of the decline might be due to lower energy and commodity prices and distortions caused by the late timing of Easter. Although inflation remains still significantly above the 2%-target, the slight decline in inflation might ease somewhat the pressure on the ECB to raise rates further in the coming months.

In the euro zone, the unemployment rate stayed unchanged at 9.90% in April, which was in line with expectations. According to Eurostat estimates, the number of people unemployed fell by 115 000 in the euro area from one month earlier. The lowest unemployment rates were recorded in Austria and the Netherlands, while the highest unemployment rate was registered in Spain, confirming that the recovery remains two-fold in the euro zone. In Germany, unemployment data for May were weaker than expected. The number of people unemployed fell by 8 000, while a decline by 30 000 was expected. The unemployment rate fell from 7.1% to 7.0%, which was in line with expectations. Also the increase of new vacancies slowed from 13 000 to 2 000 in May.