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Article / 06 September 2016 at 5:08 GMT

3 Numbers: German factory orders on track to rebound

editor/analyst /
United States
  • Economists project a solid rebound for German factory orders in July
  • Labor Market Conditions Index offers a broader read on the August US payrolls 
  • US ISM Non-Manufacturing Index should continue to reflect moderate growth

By James Picerno

Factory orders in Germany are in focus today with the July update. Later, two US reports for August will be widely read after last week's downshift in employment growth: the Labor Market Conditions Index and the ISM Non-Manufacturing Index.

 Looking up ... Germany's factory orders are expected to rise 0.8% for July. Photo: iStock

Germany: Factory Orders (0600 GMT) Economic activity in the euro area dipped to a 19-month low in August, according to survey data published by IHS Markit. The Eurozone Composite PMI slipped to 52.9 last month, reflecting the slowest expansion in more than a year-and-a-half. 

The downshift is “mainly due to a weaker rate of expansion in Germany”, IHS advised Markit, which added that the softer trend has fuelled speculation that the European Central Bank will introduce yet another new phase of monetary stimulus this week.

Meanwhile, today’s update on factory orders in Germany for July will be widely read in the wake of the downbeat news for the Europe’s macro outlook. Note, however, that the crowd’s looking for a rebound in today’s report. New orders are expected to rise 0.8% for July, according to’s consensus forecast. A firmer reading will be welcome news after June’s 0.4% slide in orders.

But one solid month won’t change the fact that the trend is still drifting lower. The year-over-year comparison was deeply negative in June and orders have contracted in two of the past last three monthly updates vs. the year-earlier level.

If today’s numbers on factory orders fall short of expectations, the crowd will continue to trim the outlook for Europe’s already sluggish growth projections.’s latest estimate for Eurozone GDP growth in the third quarter is a weak 0.21%, down from Q2’s 0.3% and Q1’s 0.6% (quarter over quarter).

Today’s data for Germany will be another catalyst for further adjusting expectations, for good or ill.

US: Labor Market Conditions Index (1400 GMT)  Payrolls in August increased by less than expected. Although the year-over-year gain was unchanged at roughly 1.7%, the news serves as a reminder that the labour market’s expansion is slowing.

The annual rate of growth for headline payrolls (private sector and government jobs) peaked at 2.3% in February 2015. The pace has been edging lower ever since. Although the economy is still minting jobs at a moderate rate, the outlook for deceleration in job growth may convince the Federal Reserve to leave interest rates unchanged when it convenes a monetary policy meeting later this month.

“I think [the August payrolls] report keeps the Fed on hold this month, and the reason is that it created no urgency for them,” reasoned the chief economist of Point72 Asset Management.

Employment reports can be noisy from month to month, of course, and so today’s broad-minded review of the labour market from the Fed will offer deeper context for deciding just how much deceleration is unfolding.

In the previous update, the Labor Market Conditions Index (LMC) – a multi-factor benchmark – posted its first positive reading in July for the first time this year. If LMCI can remain above the zero mark in August, the news may help keep expectations for a rate hike alive. But as a number of analysts point out, politics may ultimately stay the Fed’s hand no matter what the incoming data reveal.

With the Presidential election just two months away, the central bank may be skittish about squeezing monetary policy, which could invite criticism that the monetary mavens are trying to sway the election. Misguided or not, the Fed may decide to delay the next rate hike until after the November 3 election. 

By that reasoning, the next opportunity for a rate hike is in December, the last scheduled meeting this year for the Federal Open Market Committee.

US: ISM Non-Manufacturing Index (1400 GMT) Growth in the services sector eased to a six-month low last month, according to PMI survey data published by IHS Markit. “The weak PMI readings send a downbeat note on economic growth in the third quarter,” said the firm’s chief economist last week. “Taken together, the manufacturing and services PMIs are pointing to an annualised GDP growth rate of a mere 1%” for the third quarter.

The Atlanta Fed’s GDPNow model, by contrast, is currently projecting Q3 GDP growth at a much stronger 3.5% (as of September 2), which is well above Q2’s tepid 1.1% rise (seasonally adjusted annual rate). But the regional Fed bank’s upbeat outlook may be due for a downgrade if the services sector, which accounts for the lion’s share of US economic activity, is headed for a soft patch.

Today’s first-look at the ISM Non-Manufacturing Index for August offers another read on how this sector fared in August. Unlike the PMI data, ISM’s profile for services points to substantially stronger growth.’s consensus forecast sees the index dipping modestly in today’s August update, but the projected 55.0 reading is expected to remain firmly in growth territory, i.e., well above the neutral 50.0 mark.

On the other hand, the revised August data for the Services PMI (scheduled today for 1345 GMT) is on track to tick a bit lower for August vs. the preliminary estimate.

In short, there’s a divergent outlook for the services sector, depending on the survey. The question, of course, is which index is due for an attitude adjustment? Perhaps we’ll have the answer on the other side of today’s twin updates.

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– Edited by Gayle Bryant

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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