Yields on core European bonds went for a slide yesterday as prices rose in response to the ECB's decision to leave its QE programme unchanged – for now at least. Elsewhere, the USD continues to make gains on its peers.
Article / 07 September 2016 at 5:01 GMT

3 Numbers: German industrial output expected to slide

editor/analyst /
United States
  • Economists project a modest decline for German industrial activity for July
  • Will today’s UK GDP estimate from NIESR reveal another round of weaker growth?
  • US job openings offer context for recent slowdown in employment growth

By James Picerno

Germany’s economy is again in focus today with the release of industrial production data for July. Then a new estimate of Britain's GDP from the National Institute of Economic and Social Research which will be followed by the US government’s estimate of job openings in July.

Germany: Industrial Production (0600 GMT) Recent data suggests economic momentum in Germany is stumbling. The Service PMI in August, for example, slumped to its weakest reading in more than three years. Although it remained above the neutral 50 mark, the sharp drop from a moderate pace in July suggests macro momentum is slowing in Europe’s biggest economy.

 If trouble's brewing for Germany, it’s yet to show up in the retail sector. Photo: iStock

The modest rebound in factory orders for July offers an upbeat note, but the 0.2% increase was below expectations. “Domestic demand for goods is disappointing again,” hinting at a sluggish trend for the rest of the year, a DIHK economist told Reuters.

But if trouble's brewing for Germany, it’s yet to show up in the retail sector. The country's Retail PMI popped in August, hitting the highest level since March. “While sales fell short of targets, companies are confident that next month’s sales will be higher than planned,” noted IHS Markit.

Perhaps, but the outlook is mixed – which means today’s monthly report on industrial production will be widely read as the crowd looks to fresh data for deciding on Germany. Recent numbers still show growth is intact, but the trend is slowing. The Manufacturing PMI inched lower for the second month in a row in August, which implies that the recent downshift in year-on-year industrial output growth will follow suit in today’s release.

Meantime, the monthly comparison for industrial activity looks headed for a decline in July, according to’s consensus forecast. Economists are looking for a 0.3% slide in output, well below June’s 0.8% gain. Expectations for softer growth in Germany overall, in other words, are on track to find a degree of support in today’s release.

UK: NIESR GDP Estimate (1400 GMT) Brexit risk for the UK economy is still lurking, but recent data suggests initial predictions of a recession may have been excessive.

The latest example is the UK Manufacturing PMI, which bounced back sharply in August to a moderate growth reading of 53.3. The rebound follows July’s tumble – to 48.3 below a neutral 50 reading – after June’s Brexit vote.

It’s premature to conclude the UK decision to quit the EU is no threat to growth, although some pundits are making those claims.

A reality check arrives with today’s GDP estimate from the National Institute of Economic and Social Research (NIESR), a London think-tank. Last month’s estimate revealed a sharp deceleration in growth to 0.3% for the three months through July. That’s well down from the 0.6% rise in Q2 via the official data from the government.

If today’s GDP estimate for the three months through August reflects another downgrade, it’s going to be tougher to argue that Brexit worries are overdone.

US: Job Openings (1400 GMT) The softer pace of job growth last month was confirmed in yesterday’s update of the Federal Reserve’s Labor Market Conditions Index (LMCI), which dipped into negative territory in August. Revised data shows this multi-factor index slipped below zero after posting a positive reading in July for the first time this year.

The Conference Board’s Employment Trends Index also inched lower in August. The softer reading is “consistent with moderating job growth in the second half of 2016,” an economist at the consultancy said.

Will today’s update on job openings tell a similar story? Although this data arrives with a one-month lag on payrolls reports, job openings are widely read for additional perspective on evaluating the labour market’s momentum. As such, job openings have been painting an upbeat profile in recent history.

But the rising trend has conflicted with a downward bias in recent monthly comparisons for nonfarm payrolls, as the chart below shows. The divergence has widened after the weak data for August payrolls.

Today’s job openings release, however, will reflect conditions in July, when job growth was still comparatively strong. That’s a clue for thinking that today’s release will continue to provide a bullish aura. The follow-up report a month from now, however, may be due for a setback, or so the August employment figures suggest.

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– Edited by John Hampshire

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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