- Is Britain’s soft manufacturing sector a threat to economic growth?
- Eurozone consumer confidence for September expected to hold steady
- Economists see a rare bit of strength for US manufacturing
Manufacturing in the UK and the US is in focus today, with two reports on sentiment that will provide new guidance on struggles in this sector on both sides of the Atlantic.
First up is the release of the CBI Industrial Trends Survey numbers for Britain, followed by the Richmond Fed report. We’ll also see the flash September data on the European Commission’s Consumer Confidence Indicator for the euro area.
UK:CBI Industrial Trends Survey (1000 GMT): Andy Haldane, one of the Bank of England’s high priests of monetary policy, last week said that negative interest rates may be necessary to fight off the next recession. His comments inspired new concerns about the near-term prospects for Britain’s economy. It didn’t help confidence to learn that “cracks are emerging in the longer-term outlook” via BDO’s Optimism Index, which tracks the mood among UK businesses.
“While the expected continued economic growth is encouraging, falling business confidence suggests the UK economy is approaching a turning point,” said BDO partner Peter Hemington.
But if the macro trend in Britain is headed for rocky terrain, there were few signs of trouble in last week’s monthly report on the labour market. The jobless rate of 5.5% remains at a seven-year low; the share of the workforce that’s employed is at a multi-decade high; and real wage growth is chugging along at a relatively robust pace. What’s not to like?
The weak spot is manufacturing, which inspires some analysts to warn that relying on consumer spending and services for economic growth will at some point run into trouble.
Manufacturing’s struggles this year return to the spotlight today, with the monthly release of the CBI Industrial Trends Orders Index. This sentiment benchmark has been signaling weakness for much of this year, and today’s September data is on track for more of the same, according to Societe Generale, in part because of stumbling export orders.
Blowback from manufacturing’s troubles isn't denting the broad trend in the UK at the moment. Another weak set of numbers from today’s CBI release, however, will convince more analysts that trouble may be brewing.
Eurozone: Consumer Confidence Indicator (1400 GMT): The OECD last week trimmed its outlook for global growth, advising that a slowdown in China will take a toll on economies around the world. Although the group’s estimate for Eurozone growth this year ticked up to 1.6%, next year’s forecast was cut slightly to 1.9%. There'll be a price to pay in the corporate sector as well. The French investment bank Natixis yesterday warned that “the marked weakening of global growth and the appreciation of the euro against emerging currencies, will lead to a declining earnings per share on the Euro Stoxx.”
Nonetheless, it’s still premature to say that Europe’s recovery is history. Now-casting.com’s weekly update of GDP growth for the third quarter ticked higher again on Friday, inching up to a projected 0.36% quarter-on-quarter rise. That’s effectively a prediction that Q2’s official report of 0.4% growth remains on track for the current quarter.
But that's the view today. The question is how the relatively upbeat outlook fares in the weeks ahead, when concerns about China will continue to resonate. If there’s a substantial attitude adjustment brewing, the early signs may show up in sentiment numbers, such as today’s flash data for consumer confidence across Europe.
Economists are looking for no change in the European Commission’s Consumer Confidence Indicator, according to Econoday.com’s consensus forecast. If accurate, the report will provide some support for arguing that the modest decline in sentiment in recent months has run its course. In that case, Now-casting.com’s outlook for modest but steady growth in Q3 GDP will look a bit more convincing.
US: Richmond Fed Index (1400 GMT): Manufacturing has been a weak spot for the US recently. The early numbers for September suggest that the headwinds are still blowing for this sector, based on this month’s reports for two Fed indexes (New York and Philadelphia). In both cases, the September data was unusually weak, signalling that the odds are low for a near-term rebound in manufacturing overall.
Today’s report from the Richmond Fed adds another perspective on the September profile for manufacturing. This time, however, economists are looking for a more encouraging round of numbers. Econoday.com’s consensus outlook sees the composite index for manufacturing activity in the Richmond Fed’s district perking up to 3 in September from a flat reading in the previous month.
Even if that moderately upbeat forecast holds, it won’t change the fact that growth for US manufacturing overall remains challenged. The main question at this point: Is the recent slowdown in growth the start of a contractionary phase for output generally? Maybe not, assuming that today’s figures from the Richmond Fed offer a rare dose of encouragement for this struggling corner of the economy.
Disclosure: Originally published at Saxo Bank TradingFloor.com