Britain’s economy is in focus today with the monthly release of industrial production. Later, two US reports will update the macro outlook by way of fresh data for the NFIB Small Business Optimism Index and the government’s monthly estimate of job openings.
While US small-business optimism is expected to get the thumbs up today, the outlook remains cautious.
UK: Industrial Production (0930 GMT) Britain’s economy continues to grow at a relatively healthy rate. The hurdles for looking good are low, of course, courtesy of a world that's burdened with an excess of low and no-growth trends. Nonetheless, the steady pace of moderately stronger GDP growth continues to put the UK near the top of the list for large economies around the world. The question is whether weak manufacturing will derail an otherwise encouraging trend this year?
A newly published survey from EEF finds that UK manufacturers are worried about the global economy and the potential for blowback. “More than two-fifths of companies believe there are more risks than opportunities in the next 12 months,” the trade group advised. “Whilst opportunities abound, potential challenges, and uncertainty about whether these will materialise, are leading to a more muted picture.”
The rearview mirror for Britain still looks upbeat. The current GDP forecast via the National Institute of Economic and Social Research sees growth at 0.6% for the three months through November, slightly above the 0.5% gain through October. The outlook aligns with GDP growth in the mid 2% range, which is the pace we’ve seen throughout last year. (By the way, NIESR’s monthly GDP estimate is due later today, at 1500 GMT.)
Will today’s monthly update on industrial production challenge the case for anticipating continued resiliency in Britain? If so, manufacturing will be the problem.
Although headline industrial output has maintained a moderate year-over-year pace in the 1.5% to 1.9% range through October, the manufacturing component has been contracting in annual terms lately. Markit’s survey data for manufacturing anticipates another leg down, based on the December update of the purchasing managers’ index for the sector,
Not surprisingly, Econoday.com’s consensus forecast for manufacturing sees a deeper shade of red for the year-over-year comparison: a decline of 0.8% in November vs. a mild 0.1% slide previously. The headline change for industrial production is expected to hold steady with a 1.7% advance. But any stability in top-line growth will mask the mounting weakness in manufacturing.
US: NFIB Small Business Optimism Index (1100 GMT) Sentiment in the small-business community has been subdued in last year’s second half, in part because job growth for companies with fewer than 50 employees has weakened. Or does the causality run the other way? In any case, optimism has been under pressure lately, according to survey numbers from the National Federation of Independent Business. Today's data is on track to deliver a slight rebound, but the outlook will remain cautious from the vantage of these companies.
NFIB's sentiment benchmark dipped to 94.8 in November, the lowest since June. Sluggish growth overall remains a factor, according to NFIB’s chief economist. “The outlook remains the same with a slow 2%-ish growth and there is still not much pressure on prices from Main Street,” Bill Dunkelberg said last month. “All we can do at this point is hope for a more business friendly New Year.”
Today’s update is expected to show NFIB's index ticking higher, touching 95.0. A fractional advance is a reasonable forecast, if only because job growth in the small-company realm picked up in last year’s final month, according to ADP data. But today's forecast still translates to a comparatively soft number vs. the index's year-ago level of 100.4.
The outlook, in other words, is still moving in the wrong direction, according to business owners. As a result, the case for expecting that the new year will deliver substantially stronger growth still looks like a long shot.
US: Job Openings (1500 GMT) US payrolls surged higher in December, according to the government’s estimate. The Federal Reserve’s broadly defined Labor Market Conditions Index also jumped in 2015’s final month, rising to 2.9 – the highest level since January. The market will focus on today’s monthly report on job openings to learn if we’ll see another rosy profile of the US labour market.
Meanwhile, there’s a divergence to consider between the latest improvement in payrolls and the softer estimates for fourth-quarter GDP. The Atlanta Fed’s GDPNow model projects (as of January 8) that Q4 growth will slip to a tepid 0.8% in the GDP report that’s due for release at the end of this month. If the projection holds, US economic activity will continue to slow, dipping to the softest pace since last year's Q1.
The payrolls data for December tells us that the macro trend may be stronger than it appears via the GDP estimate. Today’s update on job openings will help the crowd decide if it’s time to upgrade the Q4 GDP outlook – or confirm the Atlanta Fed's soft projection.
Recent history suggests that job openings may have peaked. The government’s estimate dipped to 5.383 million (seasonally adjusted) in October, which is near the lows in recent months and well under July’s 5.668 million. Another decline in today’s November report will diminish the bullish glow from Friday’s news on jobs and raise new questions about the Fed's plans to continue raising interest rates this year.
Disclosure: Originally published at Saxo Bank TradingFloor.com