3 Numbers: German Jobless Ranks Set To Fall Again In December
James Picerno | Jan 03, 2017 01:09AM ET
- German unemployment stable as jobless population shrinks again in December
- US ISM Manufacturing Index projected to reach its highest level in 2016
- The Atlanta Fed’s revised nowcast should reaffirm softer US GDP growth in Q4
A moderately busy day of economic releases awaits for Tuesday, including the December update on unemployment in Germany. Later, two US numbers will be widely read: the ISM Manufacturing Index for December and a revised Q4 GDP nowcast from the Atlanta Fed.
Germany: Unemployment Report (0855 GMT) Yesterday’s survey data for manufacturing adds another round of upbeat numbers for evaluating Europe’s biggest economy at the start of 2017.
“German manufacturers finished 2016 on a high note, with business conditions improving to the greatest extent since January 2014,” an economist at IHS Markit said. “The manufacturing sector is therefore likely to help overall GDP growth accelerate from the modest 0.2% pace seen in the third quarter.”
Today’s unemployment data for December is expected to bring more upbeat news. The official jobless rate is on track to hold at 6% (according to Econoday.com’s consensus forecast).
Meantime, the number of newly unemployed workers in December is on track to decline for the 17th consecutive month, based on TradingEconomics.com’s consensus prediction.
Reasons to be cheerful: the number of newly unemployed workers in Germany is on track to decline for the 17th consecutive month.
Germany’s buoyant macro trend implies higher interest rates, but the 10-Year bund yield has been wilting lately and at one point yesterday fell to an eight-week low of roughly 0.16%.
The rebounding appetite for Europe’s premier safe-haven bonds isn’t a reflection of Germany’s economy.
Rather, the unsettled politics in the Eurozone is a factor that’s driving the trade as the crowd considers the potential for populist party victories in upcoming parliamentary elections this year.
The lack of growth in some corners isn't helping confidence either. The head of Germany’s Ifo economic institute, for example, warned that Italy is at risk of leaving the euro:
"The standard of living in Italy is at the same level as in 2000. If that does not change, the Italians will at some stage say: 'We don't want this Eurozone any more," said Clemens Fuest.
Far-fetched? Maybe, but at the moment the crowd’s inclined (again) to ride out any storm with a higher allocation in bunds.
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US: ISM Manufacturing Index (1500 GMT) The revival in US manufacturing activity in late 2016 is expected to remain intact in today’s first look at ISM’s data for December. Growth is modest, but the turbulent year for the sector is on track to close 2016 on a high note.
Econoday.com’s consensus forecast sees the ISM Manufacturing Index ticking up to 53.8 in last year’s final month - the highest level in more than a year.
If the forecast holds, the benchmark will mark its fourth straight reading above the neutral 50 mark.
Survey data from IHS Markit is also pointing to another round of recovery. The firm’s previously released flash estimate of its Manufacturing PMI for December touched a 21-month high.
Today’s revision (1445 GMT) is expected to push that reading fractionally higher, according to TradingEconomics.com’s consensus forecast.
The broad trend for the US economy in the fourth quarter, however, is looking a bit wobbly at the moment (as discussed below), but any year-end troubles can’t be blamed on the manufacturing sector.
US: Atlanta Fed’s Q4 GDP Nowcast (TBD) Economic growth accelerated in the third quarter to 3.5%, the fastest GDP increase in two years. By contrast, the Q4 report, which will be published later this month, is expected to reverse course.
The Wall Street Journal’s survey data for December points to a 2.3% pace in Q4, based on the average forecast. The New York Fed's December 30 nowcast is even weaker - just 1.8%.
Given the softer estimates, it’s reasonable to expect that today’s revised nowcast from the Atlanta Fed (following the 1500 GMT update of construction spending data for November) will tick lower.
The current projection for a 2.5% rise in Q4 (published December 22) looks a bit high by comparison.
Optimists counter that the incoming Trump administration’s policy changes will deliver stronger growth in the quarters ahead. Maybe, but some economists are sceptical.
“Many of our country’s long-term economic problems from slowing productivity growth, an ageing population, crumbling infrastructure, and rising national debt will be with us no matter who holds the White House or controls Congress - and those problems can’t be tweeted away,” Scott Anderson, chief economist at Bank of the West, reminded.
Meanwhile, the recent chatter about Trump’s good fortune of inheriting a stronger economy from the Obama administration may be challenged in today’s nowcast update.
Although recession risk remains low, the case is strengthening for expecting a year-end slowdown in GDP growth.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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