Article / 03 October 2016 at 4:59 GMT

3 Numbers: Mild rebound at best for US manufacturing

editor/analyst /
United States
  • Spain’s Manufacturing PMI could dip close to the neutral 50 mark in September
  • Spain is a growth leader among the Eurozone’s big four economies
  • But political uncertainty could hurt the Spanish economy
  • US manufacturing should return to growth territory after contracting in August
  • US auto sales are set to rise in September, according to the consensus forecast

By James Picerno

The first trading day of October kicks off with a busy day of economic releases, including the first look at September data for Manufacturing PMIs in Spain and the US. We’ll also see the September update on US auto sales today.

Spain: Manufacturing PMI (0715 GMT) The ongoing political stalemate in Europe’s fourth-largest economy is taking a toll on economic sentiment, but the Bank of Spain (BoS) expects a slightly firmer rate of economic growth for all of 2016 against its previous estimate.

Output is on track to rise 3.2% this year, BoS advised last week in its September projection -  slightly higher than the 2.8% forecast issued in June.

But in the short term, the macro trend will ease. The bank’s revised outlook sees GDP expanding 0.7% in this year’s third quarter, down slightly from the 0.8% advance in each of the previous three quarters.

Spain, in short, appears likely to remain the growth leader among the Eurozone’s big four economies. But political uncertainty is still elevated as the deadlock over the country’s inability to form a government rolls on.
Spain is still the growth leader among Europe's big four economies, but
services, rather than manufacturing is where it is taking a lead. Photo: iStock

Today’s first look at sentiment in the country’s manufacturing sector for September offers an early test of how the big picture trend may fare in the remaining months of the year.

Recent history, however, suggests a cautious outlook. Indeed, the Manufacturing PMI in August was unchanged at a slow-growth reading of 51.0. “August was another challenging month for Spanish manufacturers,” an economist at IHS Markit said last month.

The hard data for industrial output has decelerated too. Production increased 0.3% for the year through July in seasonally adjusted terms - the softest annual gain since December 2015.

On a positive note, Spain’s services sector is still expanding at a brisk pace, based on the PMI data. The relative strength is more than compensating for the suffering manufacturing sector, prompting IHS Markit to project GDP growth at a respectable 2.9% this year, albeit below the latest BoS estimate.

Nonetheless, the political stalemate in Madrid is a risk factor, and one that looks set to continue for the near term. If today’s PMI numbers for manufacturing slip further, the economic outlook may be due for a downgrade.

US: ISM Manufacturing Index (1400 GMT) The manufacturing sector continues to post weak readings, based on last week’s sentiment data from IHS Markit.

The flash PMI for September dipped to 51.4, reflecting the “weakest improvement in overall business conditions since June”, the firm noted.

Regional data published by five Fed banks for last month also paint a mixed-to-weak picture. Three benchmarks were mildly in the red while two posted relatively robust gains in September.

Overall, the average of the five was only slightly positive. That’s an improvement against recent months, but meaningful growth for the sector in general is still nowhere in sight.

“Softer new order gains are the main concern in the latest PMI survey, and this could act as a drag on production growth into the final quarter,” a Markit economist said last week.

“Alongside reports of subdued domestic demand, a renewed dip in export sales also held back growth momentum in September.” (Keep in mind that revised PMI data for September is also scheduled today for 1345 GMT.)

The view from the perspective of ISM Manufacturing Index looks a bit darker, at least through August, when this widely followed benchmark slipped modestly below the neutral 50 mark for the first time since February.

But the contractionary reading is expected to rebound to 50.2 for September, based on’s consensus forecast.

Slow growth bordering on no growth, however, remains the crowd’s working assumption for manufacturing until further notice.

US: Motor Vehicle Sales (TBD) Consumer spending was flat in August, suggesting that US households are turning cautious in the wake of sluggish economic growth so far this year.

The flat performance for the government’s estimate of personal consumption marked the weakest reading since March.

But some economists say it’s no big deal. “It was a soft month for consumer spending following a strong one, and it’s not anything to get worried about,” an economist at Jefferies told Bloomberg on Friday.

“The consumer is still going to be the driver of growth this quarter although not as much as the second quarter. Based on slowly accelerating wage growth and recent data on confidence, I’m optimistic about the outlook for consumer spending.”

Perhaps, but optimism may be tested in today’s monthly report on auto sales. In the August release, light vehicle sales fell sharply against the previous month, prompting some analysts to warn that the US auto industry’s multi-year bull market has peaked. If so, the shift carries implications for consumer spending generally.

Today’s data, however, is expected to provide a reprieve.’s consensus forecast sees total sales bouncing up to 17.4 million units for September.

Although the projection marks a decline from the year-ago level, a firmer monthly comparison could give a boost to expectations for the September retail sales report, which is scheduled for next week.
-- 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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