- Economists project unemployment in the euro area to hit eight-year low in May
- The joblessrate is high by some standards, but the downtrend is encouraging
- UK Manufacturing PMI may stall, but it should project growth for the sector
- US manufacturing is on track for moderate growth in ISM survey data for June
The first trading day of July begins with a busy day of economic news, including the June debut of the UK Manufacturing PMI. Later, we'll see the Eurozone unemployment report for May and the US ISM Manufacturing Index for June.
UK: Manufacturing PMI (0830 GMT): The government on Friday confirmed that GDP growth decelerated to just 0.2% in the first quarter, the softest rise in a year. The relatively sluggish pace left the UK with the weakest economic gain in the European Union.
Today’s survey data for the manufacturing sector, however, is expected to paint a relatively brighter profile.
Analysts think that the Manufacturing PMI for June will edge down to 56.5, delivering a second month of mildly slower growth.
But considering the gloomy news for Britain’s economy in recent weeks – a sharp increase in inflation and a worrisome decline in real wage growth, for instance – today’s report is expected to compare favourably.
Indeed, a 56.5 PMI reading is still well above the neutral 50 mark that separates growth from contraction and so the manufacturing sector’s prospects remain positive for the near term.
But the economy overall faces stronger headwinds in the months ahead, or so the Bank of England’s governor suggested last week. Although the central bank isn’t likely to raise interest rates in the immediate future, the odds are rising that monetary policy will be tightened in the months ahead, BoE governor Mark Carney said.
Expectations that rates will rise has strengthened sterling in recent days – a rally that threatens to remove a bullish factor that’s kept the manufacturing sector bubbling by way of stronger exports.
That risk won’t be reflected in today’s PMI data, but the potential for blowback in manufacturing will remain topical if the pound continues to rise.
“We need to look seriously at the possibility of raising interest rates to keep the lid on those cost of living increases,” said Andy Haldane, BoE’s chief economist and a member of the Monetary Policy Committee.
“For now we are happy with where the rates are,” he explained, adding that “we need to be vigilant for what happens next”.
Eurozone: Unemployment Rate (0900 GMT): Recent data continues to support a positive outlook for Europe’s economy and today’s update on unemployment is expected to fall in line with the optimistic trend of late.
Economists are looking for a decline in the euro area’s jobless rate to 9.2% for May. That’s still high by developed-world standards – the US rate, for instance, is just 4.3%. But the downward trend is a telling sign and today’s update is on track to reaffirm that the economic recovery is poised to roll on.
Indeed, the Euro-Coin Indicator – a GDP proxy for the Eurozone’s three-month growth rate – ticked higher in last week’s update, touching 0.62% for June.
That’s a clue for expecting that the official pace of second quarter GDP will hold at an encouraging 0.6% rate. Survey data published by IHS Markit last month offered a similar profile of the macro trend.
“The upturn is broad-based, with the surveys signalling an acceleration of GDP growth in both France and Germany in the second quarter, as well as across the rest of the region as a whole, albeit with some loss of momentum seen across the board in June,” the chief business economist at the consultancy recently noted.
Another down tick in the hard data for jobless figures will strengthen the view that the rebound in economic activity will carry on through this year’s second half.
US: ISM Manufacturing Index (1400 GMT): Manufacturing activity has downshifted this year, but today’s release is expected to confirm that a moderate rate of growth prevailed at the year’s midpoint.
The ISM Manufacturing Index is projected to tick up to 55.1 for last month’s reading, fractionally above May’s 54.9, according to TradingEconomics.com’s consensus forecast.
A degree of scepticism hangs in the air, however, in the wake of the softer profile for the sector via the Manufacturing PMI.
The flash estimate for June was considerably lower at 52.1. That’s still above the neutral 50 mark, but the PMI data suggests that manufacturing activity isn’t as robust as the ISM data imply.
Downgrading growth expectations is nothing new at this late date. The Atlanta Fed’s revised GDP estimate for the second quarter, for instance, fell to 2.7% in Friday’s update, down slightly from 2.9% previously.
The current Q2 outlook still marks a healthy improvement over Q1’s 1.4% advance, but expectations for a stronger rebound have been fading in recent weeks. The market will be eager to learn if today’s first look at the ISM index for June will also issue a comparatively cautious assessment. 
Disclosure: Originally published at Saxo Bank TradingFloor.com