- New factory orders in Germany are expected to increase again for September
- Healthy export orders should give German manufacturing a welcome lift
- Analysts see Eurozone retail sales dipping for a second month in September
- The Fed’s Labor Market Conditions Index may favor a rate hike next month
Germany’s economy is in the spotlight today with the release of factory orders for September. We’ll also see the September data for Eurozone retail sales, followed by the Federal Reserve’s Labor Market Conditions Index for October.
Heading up ... new factory orders in Germany are set to increase for September.
Germany: Factory Orders (0700 GMT) Europe’s growth rate appears to be picking up. It’s still a modest rebound, but two econometric estimates advise that the macro trend is set to improve in the final months of 2016. Will today’s monthly update on Germany’s factory orders fall in line with the outlook for a stronger expansion?
Friday’s weekly update from Now-casting.com estimates fourth-quarter Eurozone GDP growth of just over 0.6%, which is double the gain posted in the official Q3 report from Eurostat. Meanwhile, the Bank of Italy’s Euro-Coin Indicator (a proxy for Eurozone GDP) inched higher in the October profile – the fifth straight improvement. Although the central bank’s estimate is lower – output increased 0.38% for the three monthly through last month – the latest uptick marks an ongoing rise in the macro trend.
Perhaps, then, it’s no surprise to learn that Germany’s mighty manufacturing sector seems to rebounding after a summer slowdown, or so survey data suggests. The Markit/BME Manufacturing PMI for Europe’s biggest economy increased to a 33-month high in October.
“The improvement in the sector was fuelled by a marked increase in new order intakes, which in turn led to a solid expansion in production,” the chief economist at IHS Markit said last week. “Strong demand from export markets contributed to the rise in overall new business during the month with Asia and the US specifically mentioned by our panellists as sources of growth.”
Today’s attention turns to hard figures for new industrial orders for Germany in September. TradingEconomics.com projects a modest 0.3% rise for the monthly comparison, which would mark the third straight advance. If the prediction holds, another data point will lend support for arguing that the fourth quarter is looking up.
Eurozone: Retail Sales (1000 GMT) Today’s release on consumer spending across Europe offers another clue for deciding if the case for expecting firmer growth is the genuine article.
Survey data, however, casts a shadow on the outlook. The Eurozone Retail PMI dipped back into the red, if only slightly, in September. The mild setback follows the uptick in August that lifted the index to its first growth reading (above the neutral 50 mark) since May. But it doesn’t help to learn that retailers reported that sales also fell from year-earlier levels, according to IHS Markit.
“A relapse in French retail sales following four months of growth was the main factor behind the downturn at the end of the third quarter, though the worst overall performance was again seen in Italy,” an IHS Markit economist advised last month.
Note, however, that consumer confidence in Europe ticked up in October to a three-month high, which suggests that sentiment is at least stabilising after a rocky year. Today’s hard numbers on spending, however, are expected to show more weakness in the monthly comparison for September.
TradingEconomics.com’s consensus forecast sees sales slipping 0.2%, marking the second month in a row of contraction. The year-over-year trend, however, is on track to perk up to a 1.6% gain after decelerating sharply in August.
In short, Europe’s headline growth may be improving, but today's results are on track to deliver a mixed message with softer sales in September coupled with a firmer year-over-year increase.
US: Labor Market Conditions Index (1500 GMT) Payrolls posted a respectable increase in October, but it’s also clear that the deceleration in the labour market rolls on.
Employment at the headline level (private and government jobs) increased a bit less than 1.7% last month vs. the year-earlier level, the slowest annual pace in more than a year. The trend for private-sector payrolls is even slower relative to its history, rising slightly below 1.8% – the weakest gain in five years.
But any worries about an ageing recovery are offset to a degree by firmer growth in wages and a dip in the jobless rate for October.
“This is a good, solid report, consistent with the Fed moving in December and certainly consistent with 2% economic growth,” said the chief economist at Wells Fargo (NYSE:WFC) Securities. “Growth across wages was strong, which is going to reinforce the Fed’s view.”
But there are also signs that that the cycle may be past its prime. “Employment growth continues, but the pace of growth is slowing,” noted economist Bob Dieli at NoSpinForecast.com in a research note to clients on Friday. For the moment, however, annual growth is still “well above the range where we have to be concerned about the immediate onset of a business cycle peak.”
The question is whether today’s update of the Fed’s Labor Market Conditions Index (LMCI) will complicate the outlook for jobs and the economy overall? This monthly index, which aggregates a range of indicators, has been in the red for all but one month so far this year and today’s release for October is expected to remain in sub-zero territory, according to TradingEconomics.com’s econometric estimate.
Another negative reading isn’t enough to derail the case for a rate hike. Nonetheless, ongoing weakness for LMCI is one more reason to wonder if Fed Chair Janet Yellen can muster enough votes on the monetary committee for squeezing policy next month.
Disclosure: Originally published at Saxo Bank TradingFloor.com