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Article / 07 August 2017 at 4:59 GMT

3 Numbers: German industrial output expected to rise again for June

editor/analyst /
United States
  • Economists expect a sixth consecutive rise in German industry output in June
  • Some analysts think that Germany’s economy is at risk of overheating
  • The Eurozone Sentix Investor Confidence Index should reaffirm bullish sentiment
  • A firmer reading is projected for July for the US Labor Market Conditions Index

By James Picerno

Industrial activity for Germany is the main event for economic news in Europe today. We’ll also see new numbers for the Sentix Investor Confidence Index in the Eurozone and the Federal Reserve’s US Labor Market Conditions Index.

Germany: Industrial Production (0600 GMT) Factory orders in Europe’s largest economy rose more than forecast in June, according to Friday’s report from the Economy Ministry. The news offers fresh evidence for anticipating that economic activity will accelerate in the second half of the year.


Despite a revival in US jobs growth last month and faster wages growth, the year-on-year change in payrolls was close to the slowest advance in four years. Photo: Shutterstock

"The order numbers are another mosaic tile in what is a very positive picture of the economy," an economist at Nordea advised.

Recent survey data for Germany’s manufacturing sector is also strong. Although the Manufacturing PMI for the country slipped to 58.1 in July – a five-month low – the latest reading is still quite strong and holding at well above the neutral 50 mark.

“The recent strength of the PMI was corroborated by official data in May which saw manufacturing output growth accelerate to 4.9% year over year,” noted an economist at IHS Markit.”

Today’s hard data on industrial activity for June, however, is expected to decelerate to a modest 0.2% monthly advance, the slowest gain so far this year, according to's consensus forecast.

Today’s numbers hint at a softer round of numbers for the industrial sector, but some analysts think that Germany’s economy is at risk of overheating. “The German economy is already growing above its potential for the fifth year in a row,” an economist at Deutsche Bank warned. As a result, economic risk is rising, including the potential that the country’s widely praised competitiveness on the international stage will weaken.

By that standard, today’s data on industrial activity may be welcomed if, as expected, the profile for June shows a bit less froth in the industrial sector.


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Eurozone: Sentix Investor Confidence Index (0830 GMT) The stronger run of economic growth this year for the Eurozone is an encouraging sign, but it’s a complicating factor for the European Central Bank’s monetary policy. One byproduct of the firmer macro trend is the strengthening of the euro. Some analysts estimate that the currency’s real exchange rate has touched a three-year high recently.

One repercussion from the trend is an outlook for softer inflation. An economist at Berenberg estimates that the euro's climb since June will pare inflation by 0.2 percentage points this year and 0.4 percentage points next year. “That would be a significant impact,” Kallum Pickering told FT last week. “It could imply a slower pace of tapering next year.”

Will today’s update on investor sentiment alter the bullish outlook for the economy or the euro? Probably not. The Euro-Coin Indicator’s July reading held above the 0.6% mark, suggesting that third-quarter GDP growth in Q3 will remain on track to match Q2’s solid pace.

The Eurozone Composite PMI also paints an upbeat profile for last month’s macro trend. “The surveys indicated a slight cooling in the pace of growth in July, but this is still an encouragingly upbeat picture of business conditions,” said the chief economist at IHS Markit.

Considering the tailwind of late, today’s Sentix update will probably offer another optimistic data point.


US: Labor Market Conditions Index (1400 GMT) The US economy added more jobs than expected in July, providing support for analysts who project that growth is on a stable, healthy course. “At first blush [the payrolls report] is pretty strong,” said the chief market strategist at Ameriprise Financial.

Despite the revival in growth last month, including faster wage growth, the year-over-year change in payrolls continued weaken, easing to a 1.5% increase – close to the slowest advance in four years.

The deceleration isn’t a new phenomenon. The labour market’s annual pace peaked at nearly 2.3% in February 2015 and has been sliding ever since, albeit gradually in fits and starts.

The question is whether the ongoing slowdown in the annual rate of growth is a sign that the economy will cool in this year’s second half. Today’s July update of the Fed’s Labor Market Conditions Index (LMCI), a multi-factor measure, may provide a new clue.’s econometric estimate sees LMCI ticking up to 2.0 from June’s 1.5 reading. That’s enough to keep the economy’s bulls happy, at least for now. A downside surprise, on the other hand, may signal that the labour market’s softer annual growth rate will continue in the months ahead.


– Edited by Robert Ryan

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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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