- A minor decline is expected for the September Ifo survey data for Germany
- US durable goods orders are on track to fall in the August update
- New jobless claims in the US should rise for the first time in three weeks
Thursday’s a busy day for economic news, including the monthly update of the Ifo Business Climate Index for Germany. Later, two US releases – durable goods orders and jobless claims – will be closely read at a time of growing unease about the economic outlook.
Germany: Ifo Business Climate Index (0800 GMT): Today’s September read on economic sentiment in Germany’s business community is on track for a mild degree of backtracking, according to Econoday.com’s consensus forecast. If the outlook holds up, we’ll have fresh support for expecting that the macro trend remains upbeat for Europe’s largest economy. But even if the news is encouraging, the Ifo data won’t reflect the shocking disclosure this week that one of Europe’s largest private-sector employers – Volkswagen (XETRA:VOWG) – is struggling with the blowback of a major scandal linked to the company's false claims with emissions tests.
It’s unclear how much fallout is coming from Volkswagen’s self-inflicted wounds. But with more than 400,000 employees in Europe (as of 2014), along with supply chains that are deep and wide across the Continent, the stakes are unmistakably high. Europe's modest recovery remains intact, at least according to recent data. But sentiment is still fragile and so is growth, which means that bad news hanging over a major source of employment in the currency union isn't going to help.
The good news is that the broad trend for Germany looked good prior to the Volkswagen revelations. Today’s Ifo report isn't expected to challenge the generally upbeat profile.
Yesterday’s flash report for the Germany Composite Output Index in September hinted at a modestly lower rate of growth overall, but this month’s preliminary reading of 54.3 versus 55.0 in August still points to a solid pace of economic activity. As a Markit economist noted in the press release, “Despite slowing slightly since August, the rate of growth [in Germany] was healthy overall and indicative of a further rise in gross domestic product in Q3.”
The question is whether the Volkswagen scandal will take a bite out of growth? Perhaps not, but a convincing answer’s still several weeks away at the earliest.
US: Durable Goods Orders (1230 GMT): Yesterday’s early look at the state of US manufacturing in September offered a bit of encouragement. The flash data for the US Manufacturing PMI held steady at a moderately positive 53.0. Although that’s the second month that the index was at a 22-month low, the fact that growth didn’t weaken further offers a degree of support for expecting that the US macro trend isn’t deteriorating. It’s certainly weak, or at least weaker relative to the second quarter, but the PMI figures suggest that the growth will endure, albeit at a comparatively soft rate.
Is that a reliable forecast? Today’s hard data on durable goods orders for August may raise doubts. Econoday.com’s consensus view sees orders slumping 2% in August, reversing the previous month’s 2.2% increase—the first monthly decline in four months. But stripping out the volatile transport sector suggests a modest rise in orders, so perhaps weakness in the headline data will overstate the case for red ink.
A bigger concern is the expectation that new orders will remain negative in year-over-year terms. The annual change has been in the red since February and today’s update isn’t expected to break free of that gravity. Yesterday’s PMI data implies that a modest tailwind is still blowing in the manufacturing sector, but today’s release is on track to suggest that the modest momentum is getting weaker.
US: Initial Jobless Claims (1230 GMT): If the downbeat forecasts for durable goods are accurate, the news puts the burden of delivering an optimistic view for the economy on today’s jobless claims report. The crowd, however, is looking for a degree of backtracking.
That’s hardly a disaster—claims have been trending lower this year, and dipped close to a four-decade low in last week’s update. Today’s report is expected to show that new filings for unemployment benefits increased 9,000 to a seasonally adjusted 275,000, according to Econoday.com’s consensus forecast. That’s still an encouraging number and one that effectively anticipates ongoing growth for the labour market.
Nonetheless, there’s an aura of gloom hanging over the macro outlook these days, in part because the capital and commodity markets are weak and effectively forecasting slower growth at best. Jobless claims still provide an antidote for the darkest forecasts, but that message will have a hard time resonating when markets are inclined to focus on the negative. Today’s numbers on claims will still rank firmly as a net positive. The problem is that claims won’t offer a headline-grabbing story for the bulls today, at least not in comparison with the previous report.
Disclosure: Originally published at Saxo Bank TradingFloor.com