Article / 01 September 2016 at 5:00 GMT

3 Numbers: US manufacturing expected to slide again for August

editor/analyst /
United States
  • Spain's Manufacturing PMI to offer clue to any vulnerabilities around recovery
  • US jobless claims will likely deliver more upbeat news for the labour market
  • US manufacturing to indicate slower growth for the second straight month 

By James Picerno

The kickoff to September brings another busy day for economic news, including the first release of Spain’s Manufacturing PMI data for August. Later, two US releases – initial jobless claims and the ISM Manufacturing Index – will be widely read ahead of tomorrow’s official employment report from the government. 

 Manufacturing has been a soft spot for the US and today’s update isn't expected
to alter the downbeat narrative. Photo: iStock

Spain: Manufacturing PMI (0715 GMT) Spain’s economy is still the growth leader among Europe’s four-largest countries, but survey data for the manufacturing sector suggests that the macro trend is due to slow in the months ahead.

The rearview mirror for GDP data, however, still looks impressive. Economic output in Spain grew at a 0.7% quarterly rate in Q2, well above Germany’s 0.4% increase and a world above the flat performance for France and Italy, according to Eurostat.

But headwinds are building, in part due to political gridlock. Spain has been unable to form a government this year despite elections in December and June. Prime Minister Mariano Rajoy earlier this week warned that “Spain needs an efficient government urgently.” The political stalemate, however, isn’t expected to end any time soon.

Surprisingly, the economic news has remained upbeat this year. The International Monetary Fund still expects Spain’s economy will expand by 2.6% this year, a solid premium over the projected 1.6% expected gain for the Eurozone overall, based on estimates published in July. But stalemate in Parliament will take a toll, according to economists. With budget cuts looming in order for Spain to meet European Union budget guidelines, fiscal tightening is coming, which in turn will take a bite out of growth.

“We’ve had a series of tailwinds this year, which we’re not going to have next year,” said the chief economist at Arcano Group, an investment bank in Madrid.

Adding to worries is the recent slide in the Manufacturing PMI, which fell to 51.0 in July, or just above the neutral 50.0 mark. “The Spanish manufacturing sector moved closer to stagnation in July as new orders and purchasing activity decreased and output growth slowed,” Markit Economics noted last month.

If today’s first look at the PMI numbers for August move closer to 50, the news will unleash fresh speculation that Spain’s robust economic recovery is vulnerable.

US: Initial Jobless Claims (1230 GMT) The pace of US jobs growth is edging lower, but the outlook remains positive, according to ADP’s estimate of payrolls for August. Companies added 179,000 workers last month, moderately below July’s upwardly revised estimate of 194,000.

“The American job machine continues to hum along,” said the chief economist of Moody’s Analytics, which co-produces the employment data with ADP. “Job creation remains strong, with most industries and companies of all sizes adding solidly to their payrolls.”

Economists are looking for a gain in tomorrow’s official payrolls report that’s in line with ADP’s numbers.’s consensus forecast for private employment sees an increase of 175,000, or just slightly below the advance reported by ADP.

Today’s weekly estimate of newly unemployed workers isn’t expected to derail the projection for moderate job growth. The crowd’s looking for a slight rise in initial jobless claims for the last full week of August, but the rise will keep keep newly unemployed workers close to a 43-year low. 

In other words, this leading indicator for the labour market is set to continue casting an upbeat aura for payrolls.

US: ISM Manufacturing Index (1400 GMT) Manufacturing has been a soft spot for the US economy this year and today’s update of the ISM Manufacturing Index isn't expected to alter the downbeat narrative.

The ISM benchmark is on track to dip to 52.2 for August. That’s still above the neutral 50 mark that separates growth from contraction, but it’s also a reading that equates with relatively sluggish activity in this sector.

The flash data for Markit’s competing PMI figures in August already said as much. The PMI inched lower last month, falling to 52.1 from 52.9 in July. “While output continued to rise markedly, total new work rose at a slower pace and employment expanded at the weakest rate in four months,” Markit advised last week.

Yesterday’s ADP estimate of US private-sector payrolls in August aligns with the PMI data. Although employment at US companies posted a respectable gain last month, all of the increase was due to the services sector. Manufacturing, by contrast, suffered a modest employment loss.

The sector is still on track to expand, albeit at a slow pace. If that’s about to change for the better, it’s not obvious in today’s estimates for the ISM report for August or the revised data for the PMI, due at 1345 GMT.

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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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