Article / 08 August 2016 at 5:00 GMT

3 Numbers: Germany ripe for industrial upswing

editor/analyst /
United States
  • Weak industrial activity – expect a a solid rebound in today’s June report
  • Eurozone investor sentiment could slide in today’s monthly update from Sentix
  • The Fed’s Labor Market Conditions Index for July will probably bounce higher

By James Picerno

The main event for economic news for Europe today is the monthly update on Germany’s industrial output for June. We’ll also see new investor sentiment data for the Eurozone via Sentix, followed by the release of the Federal Reserve’s US Labor Market Conditions Index for July.

Germany: Industrial Production (0600 GMT)
A decline in factory orders in June for Europe’s biggest economy serves as a reminder that Germany’s growth prospects remain subdued. Although domestic orders increased by a solid 0.7%, foreign orders tumbled 1.2%, with Eurozone ex-Germany demand falling a steep 8.5%.

The news on orders is a bit surprising in the wake of last week’s moderately upbeat profile for the country’s manufacturing sector via survey data for July. “Survey results highlight ongoing steady growth in Germany’s goods-producing sector at the start of the third quarter,” noted a Markit economist in the recent press release for Germany's Manufacturing PMI.

The survey figures suggest that the hard numbers will perk up in Q3, although some analysts are looking for an early down payment on that forecast in today’s profile for the end of Q2.

On the up and up: German industry is showing pizazz after a period of decline. Photo: iStock

Societe Generale, for instance, advised in a research note last week that it expects industrial output overall to bounce back sharply in June, rising 1.1% after May's 1.3% monthly slide.

If so, the news could inspire the crowd to upgrade estimates of Germany’s macro trend in Q3, or at least give pause before trimming forecasts based on the weak figures for factory orders.

Eurozone: Sentix Investor Confidence Index (0830 GMT)’s weekly estimate for Eurozone Q3 GDP growth was downgraded on Friday.

The research firm advised that the euro area’s expansion is on track to slip to a 0.23% quarter-on-quarter rate, down from the already soft 0.3% rise in Q2.

Markit’s Eurozone Composite PMI offers a somewhat brighter profile, however. This broad-minded survey benchmark ticked higher in July, rising to 53.2 and remaining moderately above the neutral 50 mark.

The implied 0.3% rise for Q3 GDP is marginally better than’s projection, but “such a meagre pace of expansion will inevitably fuel speculation about what the European Central Bank could and should do to boost growth, and when,” said Markit’s chief economist last week.

Today’s monthly update on investor sentiment will provide another perspective on the near-term outlook. Note, however, that this measure of the mood for the euro area slumped sharply in the previous update. “The Brexit referendum in the UK has hurt investors’ expectations for the Eurozone,” Sentix advised last month.

If sentiment continues to deteriorate, the news will strengthen expectations that the already slow pace of growth in the Eurozone is headed for another downshift in Q3.

US: Labor Market Conditions Index (1400 GMT) The July employment report beat expectations again.

Although total nonfarm payrolls (government and private-sector jobs) eased to a net gain of 255,000 last month, that’s still a solid increase and it follows June’s upwardly revised 292,000 surge. In short, the slight decline in payrolls in May increasingly looks like an outlier.

The July data “indicates that the slowdown in hiring earlier in the year has been reversed,” said the chief US economist at Barclays.

Initial jobless claims, which is considered a leading indicator for the labour market, has been projecting no less for months and last week’s update was no different.

Although new filings for unemployment benefits rose for the second week at the end of July, claims are still close to a 43-year low, which was set in April.

“The message from claims is that there’s no significant slowing in employment growth,” asserted the chief US economist at High Frequency Economics last week. “It reflects an improving economy.”

The Federal Reserve’s Labor Market Conditions Index (LMCI) hasn’t been on board with that view, but it’s likely that the dark outlook emanating from this multi-factor benchmark will turn a bit brighter in today’s update for July.

In fact, LMCI ticked slightly higher in June, although it remained negative for the sixth month in a row.

But the latest employment numbers suggest that the labour market’s recent stumbles have ended and so it would be surprising if LMCI doesn’t reflect the improvement in today’s update.

– Edited by Adam Courtenay

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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