The growth rate of the global manufacturing sector improved at the start of the third quarter with expansions in output and new orders during July, leading to a small increase in employment for the first time in six months. However, the recent economic signalls are mixed for the US, UK and the Euro Area.


The UK manufacturing PMI (purchasing managers' index) in July fell to its lowest level since February 2013; the US PMI rose to a nine-month high supported by steeper gains in production, new orders and employment boosted by faster growth of new export business. In the Euro Area the July PMI signalled growth for the thirty-seventh successive month, with the rate of expansion broadly in line with the average for that period. However, the rate of increase in output was unchanged from June, while growth in new orders and employment moderated compared to the prior survey month.

Besides the post-Brexit vote slump in manufacturing, Reuters reports that almost all UK economists it polled expect the Bank of England to cut interest rates by at least 25 basis points on Thursday to 0.25%, but they were split on whether the Bank would restart its bond-buying programme.

Barclays Bank economists have forecast a UK recession with the economy contracting by 0.4% quarter on quarter at the end of September and by 0.3% in the fourth quarter. The recession would then be followed by "a prolonged and shallow contraction."

UK GDP (gross domestic product) growth unexpectedly accelerated in the second quarter of 2016, according to the Office for National Statistics last week — however economists warned that this was likely to be a "last hurrah" for growth before a rapid slowdown following the 23 June Brexit vote.

Growth in the three months to June was 0.6%, up from 0.4% in the first quarter, said the ONS.

In the US last Friday the growth rate was reported to have been an inflation adjusted annual rate of just 1.2% in the second quarter. The quarter was the third straight period in which the economy grew at less than a 2% annual rate, the weakest performance in four years.

The Wall Street Journal reported:

Economic growth is now tracking at a 1% rate in 2016 — the weakest start to a year since 2011 — when combined with a downwardly revised reading for the first quarter. That makes for an annual average rate of 2.1% growth since the end of the recession, the weakest pace of any expansion since at least 1949.

The official US unemployment rate is at 4.9%, earnings have started to rise and home sales hit a post-recession high in June.

Consumer spending also remains strong and personal consumption rose at a 4.2% rate in the second quarter, the best gain since late 2014.

However, US business investment fell for the third straight quarter while inventories were cut and falling government spending also offset the gains.

More than two-thirds of US economists surveyed by the Financial Times said the presidential contest would act as a headwind to growth in the US, impacting large scale investments until businesses have a better view of the regulatory, tax and government spending climate.

“There is more uncertainty around US economic policy now than there has been for quite a while,” said Lewis Alexander, economist with Nomura, according to the FT. “You look at what Donald Trump proposes in particular and it raises all sorts of questions, the threats around trade, the threat of the costs to move jobs overseas. It raises the degree of uncertainty ...around investment.”

Moody's Analytics concluded in a report on Hillary Clinton's economic proposals that was completed last week:

the upshot of our analysis is that Secretary Clinton’s economic policies when taken together will result in a stronger US economy under almost any scenario.

Moody’s in a similar analysis in June of Donald Trump’s proposals, concluded that their full adoption would cause a recession and that partial adoption would lead to slower growth, but not an outright contraction.

Nielsen, the US consumer data firm, says today that in the midst of a contentious presidential election season, consumer confidence in the US is on the rise, according to the latest Consumer Confidence Index data. "Despite the uncertainty and starkly contrasting rhetoric around key economic issues, Americans remained optimistic in the second quarter with a with a three-point confidence increase to 113. In contrast, the global consumer confidence index for the same period was flat at 98."

Last Friday Eurostat reported that seasonally adjusted GDP rose by 0.3% in the Euro Area (EA19) and by 0.4% in the EU28 during the second quarter of 2016, compared with the previous quarter, according to a preliminary flash estimate that does not include country data. In the first quarter of 2016, GDP grew by 0.6% in the Euro Area and by 0.5% in the EU28 while in the 12-month period, seasonally adjusted GDP rose by 1.6% and by 1.8% in the EU28, after +1.7% and +1.8% respectively in the previous quarter.

The Euro Area unemployment rate was 10.1% in June 2016, stable compared to May 2016 and down from 11.0% in June 2015. This remains the lowest rate recorded in the region since July 2011.

The German government expects buoyant domestic demand to drive overall economic growth of 1.7% in 2016, unchanged from 2015.

Last month the IMF raised its forecast for the Euro Area by 0.1 point this year, to 1.6%, and lowered it by 0.2 point in 2017, to 1.4%.

Chart above: US GDP trend from Bureau of Economic Analysis