3 Numbers: Steady German Industry Growth, UK Industry, U.S. Jobs
James Picerno | Jul 07, 2015 01:36AM ET
The politics and macro uncertainty of Germany .
Growth at Europe’s core continues to bubble at a moderate pace and that’s not likely to change in today's release. Yesterday’s May report on new factory orders, for instance, betrayed minimal signs of stress. Although the volatile monthly data ticked lower, the year-over-year rate jumped to 4.8% through May – a full percentage point over April’s increase.
Looking beyond manufacturing, Markit’s purchasing managers’ index (PMI) data for June raised some concerns, noted an economist who oversees the numbers. “The latest flash PMI readings paint a mixed picture of the health of Germany’s private sector economy,” said Oliver Kolodseike. Maybe so, but the Composite Output Index’s increase to 54.0 for last month reflects a two-month high and supports the outlook for continued growth in the near-term future.
Greece, of course, is in uncharted waters, which raises the risk for all of Europe, including Germany. The blow-back will probably be limited for the Eurozone’s largest economy, however, although that’s a thesis that will be tested with each new data point for months to come.
Today’s test: industrial production for May. The report won’t tell us anything about the macro trend in the new post-referendum order, although we’ll have a clearer sense of how German output fared on the eve of regime change. Echoing the numbers for factory orders, Econoday.com’s consensus forecast sees output weakening in the monthly comparison to a slight decline while strengthening in the annual change to 2.3% for May vs. 1.4% in the previous month.
In short, steady as she goes. The bigger test will come in the months ahead, when we learn how – or if – Germany’s economic activity has evolved. For today, however, moderate growth is on track to prevail.
UK: Industrial Production (08:30 GMT): The latest survey data from the Confederation of British Industry (CBI) points to a softer economy in the second quarter. The group’s monthly growth benchmark dipped to its slowest pace since late-2014 in the quarter through last month, mostly due to a softer gain in the services sector, which accounts for the majority of economic output.
But Markit’s purchasing managers’ index (PMI) for services paints a brighter outlook. The benchmark’s headline reading ticked up to a strong 58.5 last month, which suggests that macro momentum will remain robust for the near term.
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That’s also the message in the current GDP estimate by the National Institute of Economic and Social Research (NIESR). Last month the group reported UK growth of 0.6% for the three months through May – slightly faster than the previous month’s pace and the strongest since January. Will that hold in today's NIESR update that's scheduled for 14:00 GMT?
Another test of Britain's macro outlook arrives in today's industrial release for May. The crowd’s looking for something of a mixed message. The monthly comparison is on track to weaken, with output slumping 0.2% in May, according to Econoday.com’s survey of economists.
The year-over-year change, however, is expected to perk up to a 1.6% gain, which would mark the best annual rise so far this year. Modest but moving in the right direction. In addition, the critical manufacturing component in today’s release from the government is projected to strengthen a little.
Even so, Markit said last week that Britain’s manufacturing sector remains in a “funk”. Is that just noise in an otherwise ongoing growth trend for Britain overall? Probably … unless a downside surprise in today’s industrial and GDP reports collectively dispense an attitude adjustment.
US: Job Openings and Labour Turnover Survey (14:00 GMT): The June payrolls report delivered another solid gain in the headline number, but some analysts said the overall result was still disappointing. The lack of wage growth is one reason; revising growth down in previous months is another.
The labour market may not be accelerating, but it’s still a stretch to argue that the trend is stumbling. Nonetheless, yesterday’s monthly update of the Fed’s Labor Market Conditions Index (LMCI) doesn’t encourage forecasts of anything better than modest growth. Although this broad-minded measure of activity remained in positive territory for a second straight month in June, the latest update ticked lower vs. the previous release and is only fractionally above zero. As such, LMCI is still reflecting some headwinds for payrolls.
Today’s monthly figures on job openings will provide additional guidance. By this gauge, the trend looks considerably stronger. Openings jumped to a seasonally adjusted 5.376 million in April – the highest level in the 15-year history of this data set.
It’ll be interesting to see if today’s estimate for May can hold on to the recent gains. If so, the news will offer a bullish counterpoint to the recent disappointments from other corners of the labour market.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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