Japanese wages, spending and GDP data in focus, final services PMIs points to a series-record rate of expansion
A key data focus in Japan this week will be tomorrow’s release of April’s labour earnings figures. These are expected to report that average wage growth rose 1.8%Y/Y from 1.3%Y/Y in March, as a proportion of this year’s wage settlements are reflected in these data, although MHLW suggests that April’s release typically reflects wage agreement results of only a little more than 40% of firms. With inflation still rising by around 3½%Y/Y, we expect real wage growth to remain in negative territory.

The latest household spending survey (tomorrow) and BoJ consumption activity indices (Wednesday) will provide further insight into household expenditure at the start of Q2, with some payback expected for the weakness recorded at the end of Q1. In terms of Q1 activity, Thursday will bring updated GDP figures for Q1, which are expected to show a modest upwards revision to the preliminary estimated growth of 0.4%Q/Q on the back of firmer private sector capex.

Survey-wise, the final services PMI, published overnight, brought a modest downwards revision from the flash release. But this nevertheless still left the headline activity index up for the sixth consecutive month in May, by 0.5pt to 55.9, the highest reading since the series began in 2007, as the sector continued to benefit from the release of pandemic-related pent-up demand and the return of overseas visitors. Indeed, there were record highs in the new business and export orders components too, while firms were confident that activity would continue to rise over the coming twelve months too. As such, the survey suggested the second-strongest jobs growth in the sector on the series. In terms of inflation, firms continued to signal high operating costs in the sector, related not least to rising staff and raw material costs. So, while the output price PMI moderated in May, at 54.1 it still remained more than 5pts above the long-run average and among the strongest readings on the series. Thursday will bring the Cabinet Office’s economy watchers survey for May.

Euro area Q1 GDP likely to be revised lower, retail sales and PPI data for April also due
Contrasting with Japan, updated euro area Q1 GDP figures (due Thursday) are highly likely to see the modest growth initially reported (+0.1%Q/Q) revised away. Indeed, given the downwards revision in Germany and a substantial adjustment in Ireland (from -2.7%Q/Q to -4.6%Q/Q), we now forecast GDP to have contracted slightly, by 0.1%Q/Q, in Q1. The first expenditure breakdown will show that household consumption contracted for a second successive quarter, while government consumption also fell. But modest contributions from fixed investment and net trade should have provided some offsets. Meanwhile, euro area retail sales figures for April (tomorrow) are likely to record only modest growth in the first month of Q2, insufficient to reverse the drop in March, as inflationary pressures continued to weigh.

In terms of inflation, euro area producer price inflation numbers (today) will maintain their downward trend, indicating that inflationary pressures at the factory gate continue to ease. The ECB will also study the findings of its own consumer expectations survey (tomorrow), which will provide an update on inflation expectations.

Survey-wise, the final services and composite PMIs (today) will report relatively firm growth in services accompanied by persistent inflation pressures in that sector. The euro area preliminary services activity PMI edged down just 0.3pt from April’s twelve-month high to remain elevated at 55.9. The construction PMIs (tomorrow) will likely highlight ongoing challenges in the sector. Meanwhile, the sentix investor survey (also today) will provide an update on sentiment at the start of June.

German trade surplus widens to a more than 2-year high as import values continue to fall
Turning to euro area member states, this morning brought the latest German goods trade figures for April. These reported an unexpected improvement in the goods surplus at the start of the second quarter, which rose €3.5bn to €18.4bn, the highest since the start of 2021. This partly reflected a pickup in the value of exports due to a strong increase to other euro area member states, albeit the 1.2%M/M increase in total export values did little to offset the near-6% plunge in March. There was also a further downwards adjustment in the value of imports, which fell for the seventh month out of the past eight, by 1.7%M/M to the lowest level since January 2022. While this likely continued to reflect in part price effects – import prices fell a further 1.7%M/M, while export prices fell 0.4%M/M – today’s release suggests that net trade likely provided a further boost to GDP growth at the start of Q2.

April results for factory orders (tomorrow) and industrial production (Wednesday) are likely to tally with recent survey results to suggest that conditions remain challenging for manufacturers. IP numbers from Ireland (Wednesday), Spain (Thursday) and Italy (Friday) are also due.

Surveys to dominate UK dataflow
A relatively quiet week for UK economic data kicks off today with the final services and composite PMIs for May. Like in the euro area, the flash PMIs suggested that growth in the UK is increasingly reliant on services. The construction PMIs (tomorrow), along with the BRC retail sales monitor for May will likely reveal that conditions remain challenging for other sectors. The data calendar ends on Thursday with the publication of the RICS house price balance for May. Given renewed increases in interest rates on mortgages, as well as last Friday’s weak mortgage lending figures, we might expect to see an increase in the number of surveyors expecting house prices to fall further over coming months.

US focus on services ISM, factory orders and trade data
The May US services ISM survey due today is expected to remain consistent with ongoing expansion in the sector, with the headline index forecast to remain close to April’s 51.9, albeit well below the mid-50s readings seen through much of 2022 and at the start of the year. The prices paid index might well moderate further in May, while the employment component will be closely watched following last Friday’s mixed labour market report. Today will also bring April data for factory orders, which are likely to show that nondurable goods orders were lacklustre, albeit only partly offsetting the surge in durable orders that month, that were boosted by a jump in the transportation sector. These will be followed by the full trade report (tomorrow), which is likely to confirm a notable widening in the overall deficit in April (by around $14bn to $78bn) largely reflecting the deterioration previously reported in the advance goods trade release.