Ole Hansen
Saxo Bank’s head of commodity strategy Ole Hansen considers the implications of pledges by Saudi Arabia and Russia to raise oil production despite the likes of Iran and Venezuela not backing the move.
Article / 03 March 2014 at 5:29 GMT

3 Numbers To Watch: Spain, UK PMIs and US ISM Manufacturing Index

editor/analyst /
United States

• Spain's economy showing signs of life
• UK manufacturing and services trending lower
• Weather to blame for drop in US manufacturing

An assortment of surveys for the manufacturing sector in Europe and the United States are scheduled for release today. Keep in mind that several will provide revisions to the flash estimates. The updates that will bring a first look at February numbers include the Purchasing Managers Indexes (PMI) for Spain and the United Kingdom. Later, the widely followed ISM Manufacturing Index for the US arrives. Speaking of the US, the January report on personal income and spending will be published at 13:30 GMT.

Spain Manufacturing PMI (08:13 GMT) Europe’s fourth-largest economy has been the poster child for recovery hopes. Granted, as representatives of encouraging macro trends go in the grand scheme of history, the momentum still suffers from a variety of ailments. Número uno: unusually high levels of unemployment that some observers say has scarred the nation with a “lost generation” of jobless youth. Yet, it’s also true that Spain’s economy is showing signs of life — signs that are among the leading sources of optimism for thinking that the Eurozone, ex-Germany, will generate modest growth in 2014.

Sceptical? You’re not alone. But today’s February update on manufacturing activity in Spain may inspire a brighter outlook, if only slightly. There are already upbeat signs that the country’s manufacturing and services sectors are growing again, as the past several months of PMI data show. Several other metrics also look promising, including positive year-over-year comparisons for industrial production in the past two monthly estimates from the government. Meantime, the European Commission (EC) recently raised its forecast for growth this year, projecting that Spain’s GDP will increase 1 percent, up from the previous 0.5 percent estimate for 2014. “The incipient economic recovery [in Spain] is forecast to get firmer in the coming quarters, backed by improved confidence and some easing of financing conditions,” the EC noted in its winter forecast on February 25.

Today’s PMI update offers a leading-edge view that will test how the slow-but-steady positive expectations of late are holding up. Spain alone can’t drag the continent out of its funk, but it’s hard to imagine that there’s any genuine hope of a brighter 2014 for the Eurozone without a convincing rebound for the Iberian Peninsula’s main economy.


UK Manufacturing PMI (09:28 GMT) Britain’s economy is widely expected to outdistance the Eurozone’s main economies this year. Germany, for instance, is projected to expand 1.8 percent versus 2.5 percent in the UK in 2014, according to the EC’s current forecast. Why, then, is the Bank of England (BoE) committed to keeping interest rates low for the foreseeable future, perhaps well into 2015? Is it because the central bank expects that the recovery will lose some of its forward momentum?

“We think there’s scope to absorb more spare capacity before we need to start raising interest rates,” BoE chief economist Spencer Dale told Bloomberg last week. That’s hardly an argument for managing expectations down, but some analysts think that the broad trend will decelerate a bit in the months to come.

It’s easy to dismiss such predictions as premature given Britain's generally upbeat macro profile these days. But the survey data for both manufacturing and services have been trending lower lately. Both indicators are still at levels that suggest a healthy pace of growth, but it appears that the biggest gains that are typically associated with the earliest stages of a cyclical revival are behind us.

"Although the pace of output expansion has cooled slightly in recent months, growth is still tracking at one of the highest rates in the 22-year survey history,” a Markit economist said in the January update for the UK Manufacturing PMI. But if the BOE is looking for new reasons to delay the start of interest rate hikes, another dip in today’s survey number may catch the central bank’s attention. In fact, that's what economists are projecting. The consensus forecast sees today's PMI inching lower for February: 56.3 versus 56.7 in the previous month.


US ISM Manufacturing Index (15:00 GMT) Last month’s sharp drop in manufacturing activity looks troubling, but the prevailing wisdom is that it’s still mostly about the weather. US Federal Reserve chairman Janet Yellen said as much in testimony last week. “It's really quite a range of data that has been soft recently,” she observed. “I think it's clear that ... unseasonably cold weather has played some role in much of that.” Deciding if that’s true, or not, will take a couple of months at the least, which means that the crowd will have room to overlook another weak number in today’s ISM report for February.

The case for withholding judgment also draws aid and comfort from this month’s flash estimate of Markit’s US Manufacturing PMI. Indeed, according to the PMI data, manufacturing activity surged last month. “The latest reading pointed to the fastest overall improvement in US manufacturing business conditions since May 2010,” the press release advised. Why, then, does the ISM trend look so much darker?

One of the benchmarks is wrong, of course. Perhaps today’s ISM number will provide some insight. Meantime, there’s a huge gap between two measures that, in theory, should generally stay in alignment. The fact that this measurement chasm arrives at a time when there’s a relatively high degree of uncertainty about the economic trend doesn’t inspire confidence.

Keep in mind that we’ll also see revised PMI data today at 13:58 GMT, or a bit more than an hour before the ISM release. The burning question for the PMI report: will February’s bull run survive the second estimate?



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