Thursday’s a busy day for economic news, including a variety of initial November estimates of purchasing managers indexes (PMIs) throughout Europe. The flash PMI for Germany in particular is sure to draw wide attention as the market looks for guidance in the wake of soft economic reports. Later, a pair of updates will focus attention on the US economy via the monthly update on consumer inflation, followed by November’s preliminary data for the US manufacturing PMI.
Germany: Flash Mfg. & Services PMIs (08:30 GMT) Europe’s biggest economy has delivered mildly better than expected economic news lately, but mostly because it dodged a bullet. But if the threat of recession has receded for Germany, the risk of slow growth continues to weigh on the outlook. Last week’s flash estimate for GDP in the third-quarter revealed that growth was a wafer thin 0.1%. Technically that keeps Germany out of recession, but in practical terms there’s little to celebrate when it comes to assessing the overall macro trend.
It's beginning to look a lot like Christmas in Germany, but there's little cause for celebration in the signs of wafer-thin growth at best in the top EU economy. Photo: Thinkstock
The main question today: How are the numbers shaping up for the fourth quarter? A crucial set of clues arrives in today’s flash November data for the manufacturing and services sectors via Markit’s business surveys. The recent trend to date paints a mixed picture. The services PMI is still firmly in growth territory (that is, above the neutral 50.0 mark), although the index slipped to a seven-month low in the October update. Meanwhile, the cyclically sensitive manufacturing PMI rebounded last month, reflecting growth after dipping into contractionary territory in September for the first time in more than a year.
The mixed PMI data isn’t surprising. Germany’s economy is under pressure on multiple fronts, including blowback due to sanctions imposed on Russia (a key trading partner) and softer growth in export markets. So far, however, the price tag for Germany has been relatively light. Deciding if that’s still a reasonable working assumption receives a reality check with today’s PMI report. 
US: Consumer Price Index (13:30 GMT) The Treasury market’s implied inflation forecast has been sliding lately, falling to 1.84% on Tuesday – a three-year low. New York Federal Reserve President William Dudley has a mind to look the other way, favoring survey-based estimates of future inflation instead. “In assessing inflation expectations, I currently put more weight on survey-based measures of inflation expectations as opposed to market-based measures,” he said last week. “Survey-based measures have been generally stable, consistent with inflation expectations remaining well-anchored,”
Deciding if Dudley’s advice is prudent or myopic will take time. Meantime, a new clue for assessing his preference arrives in today’s monthly update on consumer price inflation. Based on the consensus forecast for today’s October report, however, the merits of Dudley’s recommendation may invite criticism. Economists see consumer inflation falling 0.1% last month compared with September, according to Econoday.com's survey data. That translates into a lower annual rate of inflation: just 1.5% for October, down from 1.7% in the previous release.
A slower inflation rate at the moment is a worrisome sign at time of heightened concern that the global economy is slowing. US growth still looks resilient by comparison, but a stronger run of disinflation will raise new questions about the persistence of America’s expansion. Perhaps Mr. Market’s estimate of future inflation deserves a bit more respect after all.
US: Manufacturing PMI (14:45 GMT) Today’s PMI data for the US will be closely scrutined for an early read on the macro trend in November. Although most of the economic numbers for last month suggest that moderate growth prevails, there’s a bit more wariness as the crowd considers recent signs of a slowdown elsewhere in the world. Exhibit A is this week’s unexpected news that Japan contracted in the third quarter despite the extraordinary stimulus efforts made courtesy of so-called Abenomics.
For now, the general outlook remains positive for the world’s biggest economy. US payrolls have been growing at a comparatively strong pace in recent months while retail spending continues to rise at a modest rate. Other corners of the economy have hit some turbulence recently (housing starts and industrial production), but the manufacturing sector continues to provide support for thinking positively.
The question today is whether the recent deceleration in growth in Markit’s PMI data is a sign of things to come. No, according to the competing ISM Manufacturing Index, which rose in October to 59.0. That is tied with August at a three-year high.
October’s PMI report, by contrast, reflects a moderate deceleration in growth, although that may turn out to be a false alarm based on today’s consensus forecast for this month's reading. Economists expect that the flash estimate for the November PMI will rise modestly to 56.5, compared with 56.2 in the previous month. That’s still signalling growth, but the data is well short of the stronger pace implied in the ISM data. Still, if the forecast holds up we’ll have new evidence that the US manufacturing sector betrays few signs of succumbing to the slowdown that’s hurting other parts of the globe.
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