Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 01 November 2016 at 6:00 GMT

3 Numbers: Sluggish expansion suggests no change for US manufacturing

editor/analyst /
United States
  • UK manufacturing projected to tick lower but remain close to a two-year high 
  • A fractional rise expected for US manufacturing in October 
  • US auto sales likely to slip in October, promoting the view that growth has peaked

By James Picerno

Manufacturing activity in October is in focus today on both sides of the Atlantic, starting with the UK Manufacturing PMI. Later, we’ll see October figures for the US ISM Manufacturing Index. In addition, October auto sales data is scheduled for release today.

 No car crash ... but US auto sales are on track to slip. Photo: iStock

UK: Manufacturing PMI (0930 GMT) Evaluating the post-Brexit outlook for the UK is front and centre with today’s October survey data for the manufacturing sector.

Recent numbers suggest that manufacturers are benefiting from the June referendum vote to leave the European Union by way of a weaker currency. Sterling has lost around 8% against the euro and the US dollar since the June 27 polling. But the devaluation has been a tailwind for exports of UK manufactured products, which are more competitive in foreign markets in the wake of a softer currency.

Economists warn, however, that any bounce for manufacturing isn’t likely to offset the blowback from Brexit that's expected to affect the rest of the economy in the months ahead. Maybe so, but today’s update is on track to show that manufacturing activity continued to expand at a moderate pace last month.

The consensus forecast calls for a modest dip in the UK Manufacturing PMI to 54.5 for October, according to But the mild setback still leaves the index close to a two-year high.

Debate still rages about the wisdom of Brexit and what it means for the UK economy overall. But today’s forecast will probably show that manufacturers aren’t complaining, at least not yet.

US: ISM Manufacturing Index (1400 GMT) Manufacturing activity accelerated in October, according to last week’s flash data for the IHS Markit PMI. Will the rebound show up in today’s first look at the ISM Manufacturing Index for last month?

Not necessarily. Economists project that the ISM benchmark will remain largely unchanged via a fractional increase to 51.6 for October – up slightly from 51.7 in the previous month. Although the September ISM report shows that the sector is growing again after slumping in August, the expansion is sluggish and more of the same is projected for today's report.

But the upbeat estimate via the PMI report, which is due for a revision today at 1345 GMT, points to a firmer trend. Indeed, the PMI jumped to 53.2 in October, an 11-month high. “Manufacturing showed further signs of pulling out of the malaise seen earlier in the year, starting the fourth quarter on a solid footing,” said the chief economist at Markit last week.

The bounce suggests that today’s ISM data may be poised to deliver an upside surprise.

US: Auto Sales (TBD) Has demand for autos peaked for the current cycle? The crowd will be looking at today’s sales data for fresh insight.

Meanwhile, recent history suggests that the best days for car purchases may have passed. Although sales are still elevated by the standards of the last several years, the numbers of late imply that the rebound since the last recession is faltering.

Today’s October update is expected to support the view that sales growth is fading.’s consensus forecast calls for a drop in purchases to 17.6 million units (seasonally adjusted annual rate).

“Although automotive sales are expected to remain near the all-time high, they are still expected to contract slightly this year, as well as in 2017,” noted LMC Automotive’s senior vice president of forecasting last week.

J.D. Power, which co-produces the LMC’s forecasts, expects that the trend is headed lower from here on out. “The fact that this will be the sixth monthly decline in 2016 puts the industry in territory not seen since before the recession,” said the firm's senior vice president. “We do not foresee a large pullback in sales in the near term, but the fact that retail sales are beginning to contract, despite high incentives and extremely low interest rates and gas prices, is a clear indicator that this cycle has reached its peak.”
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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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