In March, the Richmond Fed manufacturing index showed an unexpected improvement. The headline index rose from -51 to -20, while an unchanged reading was expected. Also the details were encouraging as all sub-indices increased compared to last month. Shipments (-15 from -56), new order volume (-20 from -54), capacity utilization (-14 from -44) and number of employees (-28 from -41) showed the largest gains. This outcome indicates that producers became less negative about their business in March and raises expectations that the ISM manufacturing might show another improvement in March.

Yesterday, we received another hopeful sign from the housing market. The house price index showed its first monthly increase in January after falling in the ten previous months. We are a bit suspicious about this rise and believe it will turn down again. However, that shouldn’t mean that we disregard the improvement signalled by some more timely reports that were published recently. These suggest that a bottom in the housing market may be reached in Q3 or Q4 of 2009. If confirmed, this would be a very positive development for the overall economy.


EMU: manufacturing and services PMI rise from record lows

Euro zone manufacturing PMI showed an unexpected, but slight increase in March, according to the flash estimate. The headline index rose from 33.5 to 34.0, while a stable outcome was forecasted. The improvement in March was due to an increase in new orders (30.7 from 28.2) and output (33.2 from 30.8), while employment (34.1 from 35.9) and stocks of finished goods (45.5 from 47.3) dropped to a new record low. Both input and output prices dropped lower. Also services PMI increased slightly (from 39.2 to 40.1) due to gains in new business, outstanding business and employment. In the services sector, prices dropped to a new record low. The improvement in both manufacturing and services PMI is a positive sign after both indices dropped to a new cyclical low in February, but need confirmation before being more confident that a bottom is in place.


Other: UK inflation rises back above 3% in February

In the UK, CPI inflation rose by 0.9% M/M, while the consensus was looking for an increase by 0.3% M/M. Looking at the details, food (1.7% M/M from -0.5% M/M), household goods (2.6% M/M -3.6% M/M), clothing and footwear (2.2% M/M from - 3.9% M/M) and leisure goods (2.5% M/M from -1.1% M/M) rose sharply, which might be due to the unwinding of strong discounting in December and January. On a yearly basis, CPI inflation rose from 3.0% Y/Y to 3.2% Y/Y, above the 3% upper limit and therefore BoE governor King will explain in a letter to the government why inflation is too high.