3 Numbers: Slight Stumble For Spain's Manufacturing PMI, U.S. Jobs, ISM
James Picerno | Oct 01, 2015 01:22AM ET
ADP Employment Report
- PMI report may show Spain’s manufacturing sector stumbling
- US jobless claims expected to tick higher but remain close to historic lows
- US manufacturing activity projected to slow to a crawl
Thursday’s another busy day for economic releases, in part because we’ll see several revised numbers for manufacturing purchasing managers’ indexes (PMIs) on both sides of the Atlantic. Most of the updates are revisions to previously published flash estimates for September. One exception is the Spain Manufacturing PMI, which makes its September debut today.
Later, two US numbers will receive wide attention: weekly jobless claims and the first look at the ISM Manufacturing Index for September.
Spain: Manufacturing PMI (0715 GMT): Headline inflation dipped into negative territory last month in annual terms for the first time since March in yesterday’s flash reading of Eurozone consumer prices. The news inspired more calls for the European Central Bank to strengthen its existing asset-buying programme to boost monetary stimulus. The concern is that the return of deflation is a warning sign that the Eurozone’s modest recovery will weaken in the months ahead.
That’s a risk factor – for a number of reasons. But it’s not clear that last month’s mild minus 0.1% decline in the headline consumer price index (CPI) from the year-earlier level is a clear sign that deflation risk is on the rise again. Most of the deflationary pressure blowing through the global economy is still closely linked with the bear market in energy.
In fact, Eurozone core-inflation (ex-energy, food, alcohol and tobacco) remained modestly positive in September, unchanged from the previous report at a 0.9% year-over-year rate. Core inflation is considered a more reliable measure of pricing trends – if so, there’s no smoking gun in yesterday’s flash CPI data.
Another upbeat number: yesterday’s September estimate of the €-Coin GDP Indicator, which ticked down to 0.39%. That’s effectively a message that the 0.4% quarter-over-quarter growth for Eurozone GDP in the second quarter is still a reasonable forecast for Q3. That’s a sluggish pace, but it’s not obvious that the modest recovery is stumbling.
If there’s a darker message rumbling in the data we may see the signs in today’s first release of September data for the Spain Manufacturing PMI. Europe’s fourth-largest economy has been at the forefront of recovery in the currency union. If there’s trouble brewing, the headwinds may show up in Spain, which has posted the fastest growth among Europe's major economies over the past year or so.
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There are, however, signs of slower growth in Spain’s manufacturing sector. After peaking recently at just below 56 in May, the PMI has fallen in the past three months, dipping to 53.2 in August. That’s still well above the neutral 50.0 mark, but another decrease in today’s release may elevate worries that Europe’s recovery is wobbly again.
On the other hand, manufacturing is suffering around the world and it’s no surprise to see the weakness spilling over into Spain. The fact that Spain’s services sector is still running hot, according to PMI data, suggests that a softer run of manufacturing growth isn’t a red flag for the wider economy, at least not yet.
US: Initial Jobless Claims (1230 GMT): Yesterday’s ADP Employment Report for September offered a bit of relief from forecasts in some circles that the US economy was slipping into a new recession. The private-sector added 200,000 jobs last month, a solid gain and strong enough to suggest that the macro trend remained convincingly positive.
In fact, the weekly reports for jobless claims have been dispensing upbeat signals all along. In the wake of the ADP numbers, it’s likely that today’s update on claims will continue to point to ongoing growth for the labour market, which bodes well for anticipating that business-cycle risk will remain low.
Economists think that today’s report will show that claims ticked up to 272,000 from 267,000 in the previous release, based on Econoday.com’s consensus forecast. But a reading well below 300,000 is still a strong signal that growth has the upper hand. Unless today’s update delivers a substantial upside surprise, claims are set to deliver another round of upbeat figures.
US: ISM Manufacturing Index (1400 GMT): The manufacturing sector is weak and set to get weaker, based on forecasts for today’s monthly release from the Institute of Supply Management (ISM).
Although the ISM Manufacturing Index is expected to remain above the neutral 50 mark, the margin of comfort is getting thin. Econoday.com’s consensus forecast sees this widely followed benchmark slipping to a two-year low of 50.5.
Dipping so close to anegative reading (values below 50 indicate contraction) would be quite a bit more worrisome if the US labour market was issuing equally dark signals. But as noted above, yesterday’s ADP Employment Report for September suggests otherwise. Nonetheless, the sluggish trend in manufacturing is a headwind for the economy’s forward momentum.
Markit’s previously released flash estimate of the US Manufacturing PMI for September is also telling us that the sector is struggling. “Manufacturing remained stuck in crawler gear in September, fighting an uphill battle against the stronger dollar, slumping demand in many export markets and reduced capital spending, especially by the energy sector,” advised Markit’s chief economist. The uphill battle will likely be reaffirmed in today’s ISM report (and PMI’s revised data due at 1345 GMT).
Disclosure: Originally published at Saxo Bank TradingFloor.com
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