3 Numbers: Upbeat US Manufacturing PMI Stands Out From Rival Metrics

Monday brings a range of new survey numbers for this month’s flash estimates on manufacturing and services activity, including figures for the Eurozone. Later, we’ll see the preliminary PMI release for US manufacturing in November, along with the Chicago Federal Reserve’s business cycle update for the broad US trend in October.

Eurozone: Manufacturing and Services PMIs (0900 GMT): The outlook for Q4 GDP growth in the Eurozone ticked up again in last week’s estimate from Now-casting.com. Although the current prediction still calls for a weak 0.27% quarter-on-quarter rise in Q4, the latest projection is the fourth incremental gain in the weekly updates for this year's final quarter, which suggests that Europe’s macro trend will match Q3’s 0.3% pace.

Growth is still sluggish in the Eurozone, which is the working assumption for the monetary mavens. No wonder, then, that European Central Bank President Mario Draghi hinted again on Friday that a new round of stimulus will arrive next month, when the bank is scheduled to make its monthly policy announcement on December 3.

“The downside risks to our baseline scenario for the euro area economy have increased in recent months due to the deterioration of the external environment,” Draghi said. “The outlook for global demand, especially in emerging markets, has notably worsened, while uncertainty in financial markets has increased.”

With the prospect of more easing on the near-term horizon, the market will be keenly focused on today’s early look at Europe’s economic profile for November via survey data from Markit Economics.

But the case for easing may not find a quick and easy friend in the flash readings on this month’s purchasing managers’ indexes for manufacturing and services. The benchmarks have turned higher this year, remaining relatively stable in recent months and delivering an overall message of moderate growth.

Nonetheless, firm PMI figures today probably won’t divert Mario Draghi and company from embracing more stimulus. Low inflation is also a factor, and the ECB president made it clear on Friday that this was front and centre for considering action next month.

“At the December Governing Council meeting we will thoroughly assess the strength and persistence of the factors that are slowing the return of inflation towards 2%,” he explained. With headline inflation virtually flat, it’s hard to imagine that the central bank will do nothing after raising expectations for a more muscular phase of stimulus.

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US: Chicago Fed National Activity Index (1330 GMT): The broad trend for the US economy has decelerated lately, as today’s update from the Chicago Fed will likely show. My econometric estimate projects a moderate decline to negative 0.21 for the benchmark’s three month average in October. If the forecast holds, the slide will mark the third consecutive monthly reading below zero, offering a reminder that growth remained sluggish at the start of the fourth quarter.

Slow growth, however, doesn’t look set to deteriorate into contraction, based on my projections for the near term trend. Even if today’s three-month average dips to negative 0.21, that’s still above the negative 0.70 tipping point that typically marks the start of new recessions.

Meantime, the Atlanta Fed’s November 18 nowcast for fourth quarter GDP growthis 2.3% (seasonally adjusted annual rate), a moderate pace that reflects a decent if unspectacular improvement over Q3’s tepid 1.5% gain.

Weather may also provide a boost for economic activity this winter, according to a new report from Bank of America. Reversing the negative effect via unusually cold weather in the past two winters, the El Nino factor could promote a warmer trend that could lead to “generally more churn in the economy”, the deputy head of US economics at the bank told Bloomberg on Friday.

“When the weather is warmer and you don’t have as much snowfall in the winter, it allows for greater construction,” she said. “And in an environment where the temperature is warmer and people are willing to be out shopping, consumer spending and restaurant sales could look stronger.”

US: Manufacturing PMI (1445 GMT): Markit’s survey data for manufacturing has been a bullish outlier for this sector. While other metrics indicate substantially slower growth if not outright contraction, the purchasing managers’ indexhas been signalling a comparatively robust upside trend.

Today’s preliminary PMI for November will be closely read to see if this leading source of optimism for manufacturing holds on to its upbeat edge. Among the clues that support estimates for improvement: Regional manufacturing benchmarks for November published by three Federal Reserve banks hint at the possibility of a rebound. Survey numbers released last week revealed varying degrees of improvement for manufacturing activity in the New York, Philadelphia, and Kansas City Fed regions.

Will we also see a firmer PMI reading in today’s update? Yes, according to Econoday.com’s consensus forecast. The crowd’s looking for a slight rise to 54.5 in November from 54.1 in the previous month. If so, today’s update will sharpen the divergence between the relatively upbeat PMI data and the flat reading via ISM's figures.

Disclosure: Originally published at Saxo Bank TradingFloor.com

Written By: James Picerno