3 Numbers to Watch: Spain, UK & US manufacturing numbers dominate
• Poor Eurozone inflation data turns focus on manufacturing
• Spain, UK both expect evidence of forward momentum
• US manufacturing stakes raised after poor income data
The first trading day of February brings an array of new survey numbers for the manufacturing sectors throughout Europe and in the US. Some of the releases are revisions to previously published flash estimates for January, such as the update scheduled for the Eurozone PMI (08:58 GMT). As a result, most of the “news” will likely come from a handful of reports that bring the first look at January data. That includes the manufacturing purchasing managers index (PMI) numbers for Spain and the UK. Later, we’ll see new US data for the ISM Manufacturing Index for January.
Spain Manufacturing PMI (08:13 GMT) Friday’s consumer-price-inflation update for the Eurozone is a stark reminder that the threat of disinflation/deflation continues to haunt the Continent. Eurostat reported that its flash estimate of annual inflation for January inched down to 0.7 percent, matching last October’s record low rate since the euro was launched.
With unemployment stuck at an elevated 12 percent in December, just below a record high for the EU, there’s mounting pressure on the European Central Bank (ECB) to take a more aggressive stance with monetary policy to combat the weak pricing environment. (The ECB’s monthly monetary announcement, by the way, is scheduled for this Thursday and so there’ll be increasing speculation this week about the odds for another rate cut and/or policy change of one form or another.)
A series of PMI updates today for economies throughout Europe will offer some support for the notion that the weak inflation numbers are only temporary and that the prospects for recovery remain intact. The flash Eurozone PMI data for January looks mildly encouraging, and it’s likely that this morning’s follow-up estimate will provide similar news. But pay close attention to the new data releases for January, including today’s first look at Spain’s manufacturing PMI numbers.
Can Spain's manufacturing sector provide further evidence the economy has turned a corner? Photo: Ozgur Sengelli \ Thinkstock
Spain has been showing signs of growth lately, inspiring predictions that Europe’s fourth-largest economy has turned the corner, if only on the margins. That was the message in the December data and so today’s January release will be closely watched for signs that Spain’s still on the mend. Good news on this front is especially crucial in the wake of Europe’s disappointing inflation report.
Even if today’s PMI numbers look relatively inspiring, the potential for trouble in the Eurozone is going to linger for some time. "The slight drop in inflation this month further proves it is too early for complacency regarding the risks of deflation in the region, providing a continued headache for the ECB ahead of the next meeting on Thursday, with markets eager to see a positive response from the Governing Council," an economist at Ernst & Young warned.
UK Manufacturing PMI (09:28 GMT) Britain’s economy expanded at the fastest pace since 2007 in last year’s fourth quarter, according to last week’s GDP report. "The economic recovery is broadly based with manufacturing growing more than other sectors, and that's evidence that the long-term economic plan is working," Chancellor of the Exchequer George Osborne told BBC last week. Today’s release of January PMI for manufacturing will provide the first look at how the sector compares in the new year.
In the previous PMI report, manufacturing activity softened a bit, although the numbers for December continued to signal that the sector’s recovery “remains on track,” according to Markit Economics. “The UK manufacturing sector ended 2013 on a positive footing. December saw rates of expansion in production and new orders both remain among the highest in the 22-year survey history, leading to a pace of job creation close to November’s two-and-a-half year record.”
The good news in manufacturing and elsewhere seems to be spilling over into the general mood. GfK’s UK Consumer Confidence Index jumped to an eight-year high in the January update, suggesting that there’s broadening support for assuming that Britain’s economic recovery has a fair degree of forward momentum for 2014.
US ISM Manufacturing Index (15:00 GMT) Friday’s spending and income report for December was a mixed bag. On the one hand, consumers are purchasing goods and services at a robust pace. The question is whether they’re able to do so for any length of time? On a year-over-year basis, disposable personal income (DPI) dropped by 1.7 percent last month vs. a year ago. That’s the first negative reading on an annual basis in four years. Is it also a sign of trouble for the economy? It’s too soon to say, in part because some analysts argue that income data of late has been distorted by temporary factors.
The antidote to worrying that there’s a darker message in the latest income numbers is a stronger run of growth in the upcoming economic reports, including today’s January release of the widely followed ISM Manufacturing Index. Both the ISM index and its competitor, the Markit US Manufacturing PMI, have been at levels lately that align with a healthy rate of growth. But the weak income data for December raises the stakes a bit for today’s release. Keep in mind too that the previously released flash estimate for Markit PMI’s January number hinted at a slower pace of growth for this cyclically sensitive sector at the start of 2014. (The PMI’s January revision is also scheduled for release today at 13:58 GMT, a bit more than an hour ahead of the ISM report.)
The retreat in the flash PMI data for January implies that the ISM index may pull back as well. In fact, that's what analysts expect. The consensus forecast sees the ISM number dropping to 56 from 57 in December. If so, that's a mild setback and not terribly worrisome, given the high margin of comfort over the neutral 50 mark. But considering the recent weakness in personal income, a surprisingly weak number for either of today’s manufacturing releases would raise new questions about the economy's forward momentum.