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Rebound For German Factory Orders, Eurozone PMI, US jobs

Published 09/04/2014, 02:57 AM
Updated 03/19/2019, 04:00 AM

Thursday’s a busy day for economic news, and includes the much-anticipated announcement from the European Central Bank at 11:45 GMT. The markets will be keenly focused on learning if the ECB will – or won’t – announce a program of quantitative easing today as a new monetary front to stimulate growth.

A couple of key reports released ahead of the ECB’s announcement will shape the outlook for the Eurozone: factory orders for Germany and the Markit Eurozone Retail Purchasing Managers' Index. Later, the US labour market will draw scrutiny with the monthly update of the ADP Employment Report. Also keep in mind that a monetary announcement from the Bank of England is scheduled today at 11:00 GMT. Germany: New Industrial Orders (06:00 GMT) Europe’s growth engine is stumbling. The mystery at this point is whether the stumble to date, which is relatively mild based on the available data, is a prelude to even deeper troubles in the second half of the year and beyond. Today’s clue for looking ahead is the July report on factory orders for Germany.

The trend of late doesn’t look encouraging. Industrial orders declined 3.2% on a monthly basis in June – the second straight month of red ink and the biggest monthly slide in nearly three years. The annual comparison doesn’t look much better – factory orders retreated 2.3%, marking the first year-on-year contraction since early 2013. As a leading indicator of industrial activity, the latest numbers suggest that Germany’s macro profile is under pressure.

But analysts think today’s July data will bring a reprieve. The consensus forecast sees factory orders rebounding with a 1.6% advance for the monthly comparison and a 1.3% gain versus the year-earlier level, according to Econoday.com. Even if the upbeat forecasts prove to be accurate, the news won’t change the generally cautious outlook for Germany that’s prevailed in recent weeks. By all accounts, the country's economic momentum remains challenged, as the unexpected contraction in second-quarter gross domestic product reminds. Economists at Nordea markets still anticipate growth overall for Europe's biggest economy, but at a relatively tepid rate – 1.5% per year through to 2016. In any case, Germany alone can’t overcome the deflationary pressures that continue to hover over the rest of the Eurozone, at least not at the rate of expansion that's projected.
“The sudden plunge in the second quarter into virtual stagnation came out of the blue,” Berenberg Bank’s chief economist told The Financial Times last week. “It may serve the purpose of reminding everyone, including Berlin, that the German economy is not invulnerable.” de.factory.04sep2014

EU: Eurozone Retail PMI (08:10 GMT) Today’s business survey update for Europe’s retail industry will be closely watched for guidance on what to expect for the continent's August macro profile. The latest numbers, unfortunately, suggest that the trend is weakening when it comes to consumer spending.

Yesterday’s hard-data release on retail sales for July showed substantially weaker-than-expected demand, with monthly spending sliding 0.4% – the first instance of contraction this year, according to Eurostat’s report. The annual pace is still positive, but it softened to an 0.8% rise, or well below the 1.9% advance that economists were looking for via the consensus forecast.

Actually, the weak retail figures aren’t terribly surprising. The Markit Eurozone Retail Purchasing Managers' Index, which is always published several weeks ahead of Eurostat’s numbers for a given month, anticipated lower consumer spending for July. Now that the warning has been confirmed, the focus turns to August, which is still largely a mystery in terms of pan-European releases.

“July's 0.4% drop in Eurozone retail sales volumes fuels concern that recently weakening consumer confidence across the Eurozone is starting to lead to increased caution in spending, thereby harming growth prospects,” an economist at IHS Global Insight told Reuters yesterday. All the more reason that today’s PMI update deserves attention as early guidance on what to expect for consumer demand. A surprisingly strong number would certainly be welcome here, but that’s probably asking too much. In any case, the retail PMI report is the last macro update for the countries that share the euro ahead of the ECB announcement that follows soon after. eu.retailpmi.04sep2014


US: ADP Employment Report (12:15 GMT) Economic momentum in the US appears to be strengthening. That was certainly the message in this week’s August report on sentiment in the manufacturing sector. The headline number for the ISM Manufacturing Index jumped to a three-year high, signalling a stronger run of growth in the near term for this cyclically sensitive corner of the economy.

Today’s question is whether the higher output in manufacturing will lead to stronger growth in employment? The past several months leave room for optimism on this front. Indeed, the government’s estimate of non-farm payrolls have increased at a monthly average of 244,000 for the past six months through July. That’s the best six-month period of growth in eight years, based on the average gain.

Today’s ADP release, which focuses on private-sector jobs, will be widely analysed for anticipating Friday’s payrolls release from Washington. The consensus view according to Briefing.com sees a slight improvement in the net gain for ADP’s August estimate – an increase of 220,000 versus July’s 218,000 increase. That’s a slim improvement, but it's enough to keep the economy-is-improving narrative alive and kicking.

The details of the labour market’s strength these days is still a bit messy – temporary work, for instance, is on the rise, which raises warning flags for some economists. But the general tone in the headline data has been positive, and a repeat performance in today’s release will inspire a new round of optimism. Considering the broad improvement in economic numbers lately, ADP’s data is on track to reaffirm the argument that economic growth is still the dominant trend in the US. us.adp.04sep2014

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