Thursday’s a busy day for economic news, including an early look at October’s macro trend for Germany via the flash estimate for the manufacturing sector via Markit’s purchasing managers index (PMI).
Later, we’ll see a pair of US updates that will provide early clues for evaluating the state of economic momentum in October.
Germany: Manufacturing PMI (07:30 GMT) Today’s initial estimate of October manufacturing activity is expected to show that Europe’s largest economy slipped a bit deeper into a mild recession this month. The news isn’t terribly surprising at this point, but if the consensus forecast holds up we'll have more evidence for arguing that the European Central Bank’s monetary policy is still falling further behind the business cycle curve.
Slowing exports is a big part of the problem for Germany at the moment. As The Economist explained earlier this week: “The German economy is powered by exports.” But there’s not much power with offshore sales these days, at least not for Germany.
Its key export markets are either struggling with recession (Europe), unable to make new purchases because of sanctions (Russia), or transitioning to slower growth and a lesser appetite for capital goods (China). The net result: Germany’s exports tumbled sharply in August.
A slowdown in exports is a big factor behind Germany's contracting manufacturing sector. Photo: Thinkstock
The headwinds from slowing exports will likely show up in today’s flash estimate of manufacturing output. The crowd’s looking for a slightly deeper shade of red that pushes the preliminary PMI for October down to 49.5, according to Econoday.com. That’s only marginally below the 49.9 reading for the previous month.
Nonetheless, if today’s forecast holds up, the news will mark the second consecutive month of PMI data that’s below the neutral 50.0 mark, which hasn’t happened in more than a year. As such, the trend for Germany, and therefore the rest of Europe, will look increasingly bearish, albeit marginally so.
The bright spot for Germany is the services sector, which continues to expand at a healthy rate, according to PMI data. Today's release will also include this month's preliminary estimate for services; the crowd's expecting only a marginal decline, albeit one that should continue to reflect a robust pace of expansion. But in the current climate, a surprisingly lower than expected number for the services data would be especially troubling if it coincides with a weak profile for manufacturing.
US: Initial Jobless Claims (12:30 GMT) Last week’s update on new filings for unemployment benefits was quite stunning. Claims dropped a hefty 23,000 to a seasonally adjusted 264,000 – the lowest in 14 years. Was it an anomaly? Apparently not – the Labor Department’s press release didn’t cite any special factors.
Today’s update will bring valuable context for deciding if last week’s news was genuine. If today’s report shows claims holding on to the recent decline, we’ll have a convincing sign that the latest dip is the real deal. In that case, it’s reasonable to assume that moderate growth for US payrolls is still the baseline projection.
Based on the consensus forecast, however, today’s number will move higher in something more than a trivial degree. Economists see claims jumping to 285,000, according to Briefing.com. That takes some of the shine off of last week's data, but claims at or around 285,000 still leaves this leading indicator within shouting distance of a 14-year low. In other words, it would take a hefty upside surprise today to convince the market that last week’s bullish release was a head fake. 
US: Manufacturing PMI (13:45 GMT) The manufacturing sector has been one of the stronger corners of the US economy lately and today’s early estimate for October isn’t likely to tell us differently.
True, analysts are looking for a slight dip in Markit’s business survey data. The consensus forecast sees the manufacturing purchasing managers' index declining to 57.0 for October’s flash estimate vs. 57.5 in the previous month, according to Econoday.com. But if manufacturing’s trend is a touch softer this month, it's still obvious that this cyclically sensitive sector is growing at a healthy rate.
Today’s update is likely to deliver more bullish news on the state of manufacturing, which will help alleviate worries that the US economy is suffering from the deflationary winds blowing in from Europe. The likelihood that Germany and the Eurozone are in a mild recession again is hardly encouraging news for anyone.
But another robust set of numbers for today’s US PMI profile will serve as a reminder that the blowback from abroad has yet to take a sizeable bite out of America’s macro momentum.