- UK manufacturing PMI to provide clue to economy's progress
- Consensus forecast expects modest rise in September US employment
- ISM release likely to confirm US manufacturing revival
The fourth quarter kicks off with another busy day for economic news, including a fresh look at manufacturing in Britain via Markit’s Purchasing Managers' Index (PMI).
Later, a pair of US numbers will draw attention ahead of Friday’s payrolls release. First up is the ADP Employment Report, followed by the monthly update of the ISM Manufacturing Index.
UK: Manufacturing PMI (08:30 GMT) The rear-view mirror reflects a slightly stronger macro profile for Britain after yesterday’s revised gross domestic product data. The economy grew a little faster than previously reported in this year’s second quarter, advancing 0.9% – the most since last year’s third quarter, according to the Office for National Statistics.
A more recent review of the economic trend, however, offers less room for celebration. Indeed, there’s been mixed news in the business survey data lately. The UK’s services sector’s growth has strengthened in recent months while manufacturing’s pace has decelerated. The divergence is quite striking, and it raises questions about what’s in store for the economy.The conflicting trends are all the more curious because both sectors were posting comparable readings of moderate growth for the PMI numbers in the mid-50 range through June. But in the past two months, manufacturing’s expansion has slowed sharply, with its PMI dipping to a 14-month low of 52.5 in August.
That’s still above the neutral 50.0 mark and so it’s clear that manufacturing is still expanding, but at a substantially slower pace vs. recent history. By contrast, the August reading for services rose to a 10-month high of 60.5.
It’s unclear what the divergence means for Britain’s economy. Much depends on what we see in today’s first look at the September PMI data for manufacturing. It’s useful to know that the government’s hard data for manufacturing has been a bit softer in recent updates, especially in the year-on-year comparisons. It may all be noise for a recovery that's still chugging along, although another round of deceleration in today’s PMI figures for manufacturing would suggest otherwise.
US: ADP Employment (12:15 GMT) The growth rate in the labour market has slowed lately, dealing a setback to optimists who argue that the US economy is accelerating. But for the moment, most of the diminished expectations of late rest on August’s disappointing numbers. It’ll be valuable to see how today’s September release compares for deciding if August was just a temporary pause.
Based on expectations, however, today’s report may leave the outlook clouded. The consensus forecast via Econoday.com sees ADP’s estimate of private payrolls rising 200,000 for September vs. the previous month, or a touch lower than August’s 204,000 increase. That’s a decent advance, at least relative to recent history for this data set, although it’s not especially encouraging as a signal for assuming that growth is accelerating.
Meanwhile, keep in mind that the official numbers from the government paint a considerably slower rate of increase for August: private payrolls grew a sluggish 134,000. That’s the smallest gain this year, and well below July’s 213,000 advance, according to official figures.
Looking on the bright side, a stronger-than-expected increase in today’s ADP number would juice the outlook for this Friday’s payrolls report from Washington. For now, however, arguing that the labour market’s on track for materially stronger growth looks like a stretch.
US: ISM Manufacturing Index (14:00 GMT) The manufacturing sector has been a bright spot for the US economy lately, as the rising trend in business survey numbers show. The flash estimate for Markit’s US Manufacturing PMI in September remained at a two-and-a-half year high for the second month in a row.
What’s more, the data shows that employment was strong. Taking a cue from the latest PMI numbers, Markit’s chief economist predicted that US GDP growth in the third quarter will be a healthy 3-4%. “Companies are clearly optimistic, building capacity and expanding to meet anticipated future sales growth.”
Today’s September update on the ISM Manufacturing Index will probably tell a similar story. Although the consensus forecast sees the ISM number dipping a bit to 58.0 for last month, according to Econoday.com, that’s hardly a worrisome sign since the index is coming off a strong August reading of 59.0 – a three-year high.
Manufacturing’s robust trend of late is leading the economy forward, according to T. Rowe Price’s chief economist, Alan Levenson. A key part of the sector’s revival is bound up with higher energy production in the US, including a surge in natural gas production that’s driven by new technologies for locating and extracting energy supplies.
“The manufacturing sector has benefited greatly from this altered energy landscape,” Levenson noted recently. Today’s ISM release (along with revised PMI data scheduled today for 13:45 GMT) will likely strengthen the case for maintaining an optimistic view for this cyclically sensitive sector.