The pace of economic news picks up today, including the monthly update on UK industrial activity. Later, two US reports will receive wide attention ahead of next week's Federal Reserve meeting, which may deliver the first interest rate hike in nine years. First up is the NFIB Small Business Optimism Index followed by the government’s estimate on job openings.
UK: Industrial Production (0930 GMT): Economic growth overall is still advancing at a solid pace, but manufacturing is facing stronger headwinds, according to yesterday’s release of EEF’s fourth quarter outlook for the sector. The survey “makes for disappointing reading,” advised EEF’s chief economist. “After three quarters of falling output in the official statistics, the next six months looks like more of the same.”
Will the softer outlook for manufacturing show up in today’s October report on industrial activity from the government? Perhaps, although another survey leaves room for optimism, if only on a temporary basis. Markit’s purchasing managers’ index for the sector popped up to a 16-month high in October. The PMI fell back in November, although it continues to signal a moderate rate of growth.
“UK manufacturing is moving back into expansion mode during quarter four, as it starts to reverse the losses sustained in the prior quarter,” a Markit economist said last week. “Although the pace of growth so far is only very modest, it positions manufacturing as less of a drag on the broader economy,” Rob Dobson explained.
He added that strong growth in the services sector is needed to generate 0.6% GDP growth in Q4. That, by the way, is the pace for the three months through October, according to last month’s estimate for the economy via the National Institute of Economic and Social Research, which is due to publish an update today at 1500 GMT.
Keep in mind, however, that the upbeat PMI reading for October stumbled in November. That’s a clue for thinking that even if today’s hard numbers for industrial activity in October paint an encouraging profile, the rosy glow may be short-lived.
US: NFIB Small Business Optimism Index (1100 GMT) : Last week’s upbeat news of another solid rise in US nonfarm payrolls suggests that the economy is still on a growth path. Why, then, is the mood in the small business community treading water? Maybe the answer lies in the fact that job growth for companies with fewer than 50 workers is ticking lower.
Small firm employment’s growth rate eased last month, according to ADP data. Since June, the trend has been trending lower, albeit mildly so and with intervening pops along the way. But compared with the recent gains for the national trend for private payrolls, the small company data for job growth has been flat to slightly down in recent months.
Should we expect stronger numbers for small firms in the months ahead? There’s room for doubt, according to the NFIB’s sentiment data for executives at these companies. The group’s Small Business Optimism Index has remained largely unchanged in recent months, sticking close to 96 through October–well below the recent peak of just over 100 for last year’s closing month.
Economists think that the flat-lining will continue in today’s November update. Econoday.com’s consensus forecast sees the NFIB benchmark inching lower to 96.0. Translation: there’s still a weak case for expecting a strong improvement in job growth in the small-company sector.
US: Job Openings and Labour Turnover Survey (1500 GMT): Job openings data has been wobbly lately but the overall trend still looks encouraging.
The government’s estimate of new positions rebounded in September after posting a sharp drop the month before. Despite the volatility, openings are close to a record high for this data set, which begins in 2000.
The question is whether the latest openings report is misleading? The reasoning for wondering if the job market is softer than it appears via openings stems from the softer data for the so-called hires category with the year-over-year comparisons. Whereas job openings increased by a robust 18% for the year through September, the number of hires was fractionally lower - the softest annual reading in three years.
Will today’s update help sort out the diverging signals? In search of an answer, keep your eye on how the year-over-year changes stack up. Friday’s encouraging jobs report suggests that there’s still a healthy recovery unfolding in the labour market. If so, we should see corroborating evidence in today’s JOLTS report – for openings as well as hires.
Disclosure: Originally published at Saxo Bank TradingFloor.com