3 Numbers: Germans Hang Tough; Spain Industry, UK Manufacturing

Today's trio of data for industrial activity in August will be closely read amid worries about a global slowdown. This week's Germany: Industrial Production (0600 GMT): Is yesterday’s disappointing August report on factory orders a sign that Europe’s biggest economy is vulnerable to the global slowdown that’s weighing on the macro trend in China, the US and elsewhere? That’s a reasonable assumption, although some analysts are inclined to reserve judgment.

“While order data in August were overall disappointing, it’s too early to fall into a panic about the economy because orders from within the country and the currency union - amid all the volatility - still point upward,” an economist at Bayerische Landesbank in Munich told Bloomberg. “However, high uncertainty about China and the cooling of the Chinese economy has left its mark.”

There’s also likely to be some repercussions for Germany and the Eurozone from the unfolding scandal at Volkswagen (XETRA:VOWG) (OTC:VLKPY), which warned yesterday that the company will delay or cancel billions of euros in previously planned investments in plants and technology.

Today’s question: Will the August report on industrial production add to the negative aura? The outlook is mixed, according to Econoday.com’s consensus forecast. Although output is expected to slip to a slightly negative comparison for the monthly change, the year-on-year trend is on track to strengthen to a 3.6% increase.

Meanwhile, manufacturing activity through September continues to expand at a healthy pace, according to Markit’s purchasing managers’ index for the sector. “The average for the third quarter as a whole was the best in over a year, suggesting that the goods-producing sector should have a positive contribution to overall GDP in Q3,” said a Markit economist.

The PMI data suggests that industrial output is still poised to trend positive for the near term. The big uncertainty is how the fallout from a slowdown in China and VW cutbacks will affect Germany’s economy. The answer, for good or ill, won’t be known until the October numbers start rolling in later this month.

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Spain: Industrial Production (0700 GMT): Europe’s fourth largest economy has been enjoying a relatively strong recovery over the past year. Is the rebound at risk in the current climate? That seems to be the message in the recent data.

Sentiment numbers for Spain’s manufacturing and services sectors, for instance, have tumbled lately. Although both PMIs remain in growth territory, there’s been a notable deceleration. In the September updates, both PMIs are at levels that are well below recent highs.

A Markit economist wonders if Spain’s recovery has peaked. “The rest of the year will be crucial in determining whether the Spanish economy continues to improve or eases back towards stagnation,” remarked Andrew Harker in this week’s PMI update for the services sector.

The rest of the year starts with today’s update on industrial activity in August. The PMI numbers for that month imply that output's pace will ease in year-on-year terms, but only slightly. The real test comes in September, when the sentiment data for manufacturing fell uncomfortably close to the neutral 50 mark that separates growth from contraction. Today’s hard data on industrial activity for August may reflect a brighter trend, but autumn’s headwinds are lurking.

UK: Industrial Production (0830 GMT): A weaker trend in industrial activity is also stalking Britain. Output in year-on-year terms is close to the slowest pace in recent history while the manufacturing component dipped into negative territory in July against the year-earlier level—the first dose of red ink in two years.

On the other hand, the broad macro trend remains comfortably positive, according to the National Institute of Economic and Social Research (NIESR). The group’s September estimate for GDP posted a slightly softer growth rate of 0.5% for the trailing three-month period against 0.6% previously. But that’s still a decent pace—if it holds.

The near-term outlook, however, is signalling a more challenging economic climate, according to this week’s update of the services PMI data. The rate of economic growth slowed to a two-and-a-half year low in September, according to the latest update. The news suggests that "the economy sank further into a soft patch at the end of the third quarter,” said Markit’s chief economist.

The crowd will be eager to see if there’s any confirming evidence of a slowdown in today’s hard data on industrial activity for August. Using the latest IMF economic outlook as a guide still leaves room for optimism. The group’s GDP estimate for UK growth this year has been raised slightly to 2.5% in the October update of the World Economic Outlook against July’s forecast of 2.4%. The question is whether the data on industrial production will help or hinder the IMF’s upbeat assumption for Britain’s economy?

Disclosure: Originally published at Saxo Bank TradingFloor.com