Article / 01 June 2016 at 4:59 GMT

3 Numbers: UK manufacturing PMI to contract for a second month in May

editor/analyst /
United States
  • UK Manufacturing PMI is projected to remain below the neutral 50 mark in May
  • A "yes" victory in this month's Brexit vote could even spark a recession
  • US ISM Manufacturing Index should hold steady in positive territory—just barely
  • No change is projected for US light vehicle sales in May compared to April
By James Picerno

June kicks off with a busy schedule of economic updates, including the monthly update of the UK Manufacturing PMI report. Later, the US ISM Manufacturing Index for May arrives. We’ll also see fresh numbers on US light vehicle sales for May.

UK: Manufacturing PMI (0830 GMT) Britain’s manufacturing sector has been contracting lately, and the red ink is expected to spill once more in today’s update of survey data for May.

The Markit/CIPS Purchasing Managers’ Index for manufacturing slipped below the neutral 50 mark in April for the first time in three years. “Companies generally attributed the deterioration in operating conditions to a combination of softer growth of domestic demand and a reduction in new business from overseas,” Markit noted last month.

 Even though US light vehicle sales are likely to stay flat for May, there are still good prospects for US consumer spending to expand at a healthy pace this year. Photo: iStock’s consensus forecast sees the contraction easing a bit for today's release. The headline PMI figure is projected to rise slightly to 49.6 for May, fractionally above April’s 49.2. But if the forecast holds, output will contract for a second straight month.

That’s hardly a surprise at this point. The hard data on industrial activity fell into the red in this year’s first quarter. But for the moment the outlook for UK growth overall is still positive, according to a recent forecast from the Confederation of British Industry (CBI). The trade group last month advised that UK GDP will expand by 2.0% in 2016 and next year. That’s moderately lower than the previous estimate, but it’s still comfortably in the positive column.

The elephant in the room, of course, is this month’s referendum on Britain’s membership in the European Union. A vote to quit the EU, many economists warn, could trigger a recession. That’s debatable, but until the outcome of the June 23 vote is known, macro analysis for the UK will suffer from an unusually large dose of uncertainty about what's waiting in the second half of 2016.

US: ISM Manufacturing Index (1400 GMT) Markit’s flash estimate for manufacturing activity overall was virtually flat in May. But note that the production component of the purchasing managers’ index “signalled the first reduction in output since September 2009 in May,” the firm noted. Today’s first look at the ISM Manufacturing Index for May will be closely read for deciding if the weak PMI data is a sign of things to come.

Keep in mind that the ISM reports of late have hinted at a mild recovery for manufacturing. After posting negative readings for five months through February, the ISM Manufacturing Index rebounded to slightly positive readings (above 50) in March and April.

In fact, the crowd’s looking for a third month of growth via today’s ISM report for May.’s consensus forecast calls for a fractional decline to 50.6, down from April’s 50.8. But if the estimate holds, this data will reflect three straight months of expansion, if only just barely.

For additional context, keep an eye on today’s revised PMI data for May, which is due out at 1345 GMT, or just ahead of the ISM report. Here too the headline index is on track to remain in the positive column, but by the thinnest of margins.’s outlook for the PMI in May: 50.5, down a touch from the flash estimate of 50.8.

Manufacturing, in other words, is expected to hold on to a growth bias... by a thread.

US: Light-Vehicle Sales (TBD) Consumer spending in April surged 1.0% in April, the biggest monthly gain in nearly seven years, according to yesterday’s update from the US Bureau of Economic Analysis. This news buoys hopes that the US economy is continuing to recover after suffering a sharp slowdown in the first quarter.

“There was a lot of presumably pent up spending given that the last few months were quite soft for consumption,” said the deputy head of US economics at Bank of America. “The consumer should be a fairly bright spot for the economy.”

Will the optimism on consumer spending extend to today’s monthly report on auto sales for May? Perhaps, although the crowd’s looking for no change in auto sales for May, according to’s consensus forecast. Spending on new light vehicles is expected to hold steady at 17.4 million units, unchanged from April. The estimate translates into a middling number relative to recent history.

The forecast, if it holds, will provide a degree of support for thinking that auto sales still have a decent chance for setting a record year as consumer spending expands at a healthy pace. But note that some analysts are adjusting expectations down, albeit modestly.

“Vehicle-sales growth appears to be flattening out,” said the senior vice president of forecasting at LMC Automotive, a consultancy. “While we do not anticipate a retraction in volume over the next 12-18 months, strong year-over-year growth will be difficult to come by.”
Create your own charts with SaxoTrader; click here to learn more. 

– Edited by Robert Ryan

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail