01 September 2011 at 9:00 GMT
ISM Manufacturing, the first of two U.S. heavyweights to come our way this week, Nonfarm Payrolls being the other tomorrow, has analysts fearing we are about to see the first contraction in the manufacturing sector in two years.
U.S. manufacturing to contract? The last time the ISM Manufacturing Index showed sector-wide contraction was in the first month of the current expansion, July 2009, when the index rose to 49 from 44.7 a month. We now find ourselves in the position where after exactly two years - 24 positive monthly readings - the index is about to head south again. The regional Fed Manufacturing indices already released certainly point to contraction with yesterday's Chicago PMI an 'expansion' outlier and hence consensus has slapped a 48.5 expectation on today's release while a (notoriously unrealiable) whisper number suggests 44-45.
We prioritise - and are more concerned about the outcome of - tomorrow's employment report, but needless to say a 44-45 number is bound to give the markets a good shake-up today. A word of caution. Due to the secular downtrend in American manufacturing a reading below 50 in the ISM Manufacturing Index is
not necessarily consistent with a decline in GDP. In the words of the ISM itself:
"PMI in excess of 42.5 percent, over a period of time, generally indicates an expansion of the overall economy."
Global PMI Manufacturing day: while the U.S. edition of PMI Manufacturing is bound to get most attention a bunch of other PMI Manufacturing indices will be released today. China's official index actually rose to 50.9 in August from 50.7 a month though slightly less than expectations of 51 earlier a report released earlier today showed. The unofficial HSBC PMI Manufacturing Index showed contraction though at 49.9 after 49.3 in July. An array of European PMI Manufacturing indices are also bound to be released, but the most important ones (Germany and Eurozone) are final estimates and hence not expected to change from the initial estimate.
Swiss GDP in line, German GDP barely grows: the Swiss economy struggled with a surging CHF in the second quarter, but nevertheless performed quite well, putting up a 0.4 percent growth figure for the quarter while 1Q was revised up to 0.6 percent from 0.3 percent. This means that the Swiss economy has risen 2.3 percent year-on-year. A worrying part about the report, however, is that government consumption carried much of the load growing 2.8 percent - a staggering 11.7 percent annualised - in the quarter. Household Consumption also rose a bit (0.2 percent) while both imports and exports declined (-1.3 / -1.7 percent).
Germany released a detailed version of its 2Q GDP report this morning showing that the 0.1 percent growth rate was due mostly to weak Private Consumption (-0.7 percent) and Net Exports (Imports: +3.2 pct. / Exports: +2.3 pct.).
Note: the Swedish Swedbank PMI is missing from the above calendar. Consensus expects a reading in August of 49.8 down from 50.1 in July. It will be released at 6:30 GMT.