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Article / 06 July 2016 at 5:00 GMT

3 Numbers: Bounce projected for German factory orders

editor/analyst /
United States
  • German factory orders expected to rebound in May
  • Future quarters may show some post-Brexit vote impact on industry output
  • Spanish industry output data should support the government’s upbeat outlook
  • The US ISM Non-Manufacturing Index in June should post slightly stronger growth

By James Picerno

Factory orders for Germany and industrial production for Spain are the main events for macro releases in Europe today. Later, we’ll have a fresh read on the US services sector via the first look at the ISM Non-Manufacturing Index for June.

Germany: Factory Orders (0600 GMT) Is the rebound in Germany’s industrial output in April set to roll on in the months ahead? Survey data certainly looks encouraging.
 Industrial output could slow down in the post-Brexit vote EU, but for now a second-quarter bounce is expected in Germany, Europe's top economy. Photo: iStock

The Germany Manufacturing PMI jumped to a 28-month high in June, boosted by strong production growth among manufacturers. “Germany’s manufacturing engine shifted into a higher gear at the end of the second quarter, with goods producers enjoying their best month since early-2014,” said an economist at Markit Economics. “The sector was fuelled by a strong labour market, favourable economic conditions and rising demand from both the domestic and foreign markets, according to the survey results.”

Today’s update will offer a reality check by way of new factory orders for May. Given the strong PMI data, it’s not terribly surprising that economists are looking for a solid rebound.’s consensus forecast sees new orders bouncing to a 1% monthly gain—a strong reversal from April’s 2% tumble.

If factory orders increase today, the news will strengthen the view that industrial output in Europe’s biggest economy is strengthening. It’s unclear if a post-Brexit-vote world will create new headwinds in the second-half of the year for Germany and Europe generally. For what it’s worth, the IMF last week said that it would probably lower its growth forecast for Germany. But for now, a second-quarter bounce appears to be unfolding for manufacturers.


Spain: Industrial Production (0700 GMT) The economic outlook is due for an upgrade, Spain’s economist minister said on Tuesday. “The growth projections for this year are excessively prudent and I believe that in the next set of forecasts, which we need to set before the end of July, we will revise growth for 2016,” advised Luis de Guindos.

The current estimate for 2016 growth is 2.7%, but the government is on track to raise the expected increase in GDP by more than last year's 3.2% advance. “If we are able to form a stable government with a good economic policy agenda it is possible to exceed the growth rate we achieved last year,” de Guindos told the FT.   

Markets will be looking to see if today’s May report on industrial output aligns with the government’s rosier outlook. Survey data, however, suggests we should keep expectations in check. Markit’s Spain Manufacturing PMI downshifted in May and June, dipping to relatively subdued growth rates compared with the first quarter.

“While there was a positive sign from the latest Spain manufacturing PMI survey [for June] as output growth picked up, this was counteracted by a further slowdown in the pace at which new orders increased,” said the Markit economist who oversees the numbers for Europe’s fourth-largest economy.

The implied message: if there's support for a growth upgrade, we'll have to wait until the second half to see the evidence in the hard data.


US: ISM Non-Manufacturing Index (1400 GMT) Today’s June figures for the services sector will be widely read as the crowd looks for more context ahead of Friday’s employment report, which is expected to post a strong rebound after May's disappointing release.

Recent history in the ISM Non-Manufacturing Index, however, still points to a sluggish trend. Although output in services overall is growing, there’s been a noticeable downshift in the expansion in recent months. Another round of weak numbers in today’s update will be hard to dismiss in the wake of mixed macro numbers overall in this year’s first half.

The good news is that analysts are looking for a slightly firmer reading in today’s ISM release.’s consensus forecast calls for a mild increase to 53.3 for the ISM benchmark—up slightly from 52.9 in May. That’s still comfortably in growth terrain—above the neutral 50 mark—but another subdued report will raise questions about the second half.

Note that the flash June data for the PMI Services Index was previously released last week and the estimate revealed “subdued” growth and the weakest employment growth in a year-and-a-half. It’ll be interesting to see how today’s revised PMI numbers compare (due out at 1345 GMT).

In any case, the stakes are high. This sector provides the overwhelming share of economic momentum for the US and so it’s hard to imagine that job growth will rebound if services activity is stumbling.

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– Edited by Robert Ryan

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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