3 Numbers: Moderate Growth Expected For UK Manufacturing PMI In May

The economic numbers will be flying during an unusually busy schedule for Thursday. Among the key updates to monitor is the May report for the UK Manufacturing PMI. Later, two US numbers for May will be widely read: the ADP Employment Report and the ISM Manufacturing Index.

Slight decleration ... UK manufacturing is on track to hold on to recent gains. Photo: Shutterstock

UK: Manufacturing PMI (0830 GMT): Britain’s economic growth has been cooling this year, but economists expect only a marginal downgrade in today’s survey data for the manufacturing sector.

Econoday.com’s consensus forecast points to a slight decline in the Manufacturing PMI to 56.5 for May, down from 57.3 previously. But that’s still close to the three-year high posted in April.

The broader macro trend, however, has been downshifting, according to recent GDP estimates via the National Institute of Economic and Social Research. The consultancy estimated that output increased just 0.2% in the three months through April, the softest rise in a year.

The weaker trend for the UK increasingly looks like an outlier relative to the global economy. “Overall, global growth is looking increasingly sustainable with data surprising to the upside in a number of emerging market countries,” an analyst at Moody’s Investors Service told The Telegraph on Wednesday. “The current momentum should continue. With the exception of the UK, recovery in advanced economies is also picking up.”

Nonetheless, today’s PMI report is expected to offer some relatively encouraging news. But in the current climate, stay on the alert for a downside surprise, which would weigh heavily on expectations for the UK economic outlook.

All the more so in the wake of a new poll that suggests that Prime Minister Theresa May’s Conservative Party could lose its majority in Parliament – a prospect that would further heighten uncertainty about the path ahead for Brexit negotiations.

US: ADP Employment Report (1215 GMT): The labour market is expected to show moderate growth in May, according to expectations for today’s ADP release. The projected gain is on the softer side relative to recent history, but most economists think employment growth is still rising at a healthy pace.

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Econoday.com’s consensus forecast calls for an increase of 170,000 jobs in the private sector for May, down slightly from the 177,000 increase in the previous month. That’s below the 195,000 average for the 12 months through April, but it’s strong enough to fend off any worries that the economy is stumbling.

As an added bonus, a 170,000 advance reduces the pressure on the Federal Reserve to raise interest rates at next week’s monetary policy meeting. In short, the crowd’s looking for an increase in employment that’s in the sweet spot between too soft and too strong.

Softer-than-expected inflation also gives the Fed an excuse to delay the next rate hike. The central bank’s preferred measure of pricing pressure – the price index for personal consumption expenditures – increased at a 1.7% year-on-year rate in April, down from 1.9% and comfortably below the Fed’s 2.0% inflation target.

If today’s ADP data matches expectations (or falls short of the crowd’s forecast), the case for expecting a rate hike at the June 13-14 Federal Open Market Committee meeting will weaken, if only on the margins.

US: ISM Manufacturing Index (1400 GMT): Survey data for May suggest that economic activity in manufacturing continued to decelerate, based on the Manufacturing PMI’s flash estimate. Will today’s first look at the ISM Manufacturing Index for last month corroborate that view?

Yes, according to the crowd’s forecast. The ISM index is expected to edge down in May, slipping to 54.6, based on Econoday.com’s consensus data. If the prediction is correct, this widely read benchmark of the manufacturing sector is headed for its third straight month of softer readings.

The expected decline still leaves the ISM Manufacturing Index well above the neutral 50 mark that separates growth from contraction. As such, the near-term outlook still looks encouraging for the sector, although the strong growth in the first quarter appears to be fading.

It’s premature to interpret the softer readings for manufacturing as the start of deeper trouble for this year’s second half. But that outlook would be subject to change if we see a bigger-than-expected drop in today’s update, which would raise new questions about the sector’s forward momentum.

For additional context, keep an eye on today's May revision of the Manufacturing PMI, which is due for release at 1345 GMT, just ahead of the ISM data.

Disclosure: Originally published at Saxo Bank TradingFloor.com