The British pound slid against several major currencies today after the preliminary estimate for third-quarter UK GDP came in at a lower-than-expected quarter-on-quarter change of 0.5%.
By Peter Martin
Tuesday, October 27, 2015
Growth in the second quarter had been 0.7% and the consensus estimate was for a slowdown in the pace of growth to 0.6%. The slightly sharper rate of slowing nudged annual growth down from 2.4% in the second quarter to 2.3%. Construction was one of the sectors that dragged, while manufacturing also cooled, though an uptick in the important services sector helped to offset these declines. A concern will be that manufacturing is a pro-cyclical area of the economy, and a downturn here might foreshadow a wider slowdown. The growth doesn’t undershoot the Bank of England’s expectations enough to suggest any significant rethink in monetary policy, though it is certainly not going to hurry any plans the central bank may have for tightening. GBP/USD fell 0.1% to 1.5334 in early trading, while GBP/EUR dipped 0.2% and GBP/JPY slid 0.76%.
Manufacturing is looking weak in the US as well. The Fed’s industrial report for September, released earlier this month, showed a contraction in the manufacturing sector —the fourth fall in five months — and there was further confirmation of softness today with the release of durable goods orders data. New orders declined 1.2% in September, a slightly heavier fall than expected, while August was revised sharply lower to -3.0% from an originally-reported -2.0%. Excluding the volatile transportation component, orders fell 0.4%, which ties in with the overall trend of a sector that has been undermined by a combination of the ongoing strength of the dollar, reduced business spending from the energy sector as a consequence of lower oil prices and slower global demand as a whole. Shipments, which contribute to GDP, rose last month, albeit not sufficiently to outweigh the decline in August: core capital shipments rose 0.5% in September after August’s 0.8% contraction.
The downbeat nature of the manufacturing data contributed to a weak opening on Wall Street. Shortly after the opening bell in New York, the Dow Jones had fallen 76 points or 0.43% to 17,546, while the S&P 500 dropped 0.34% to 2063.8.
Anecdotal evidence data for the services sector, which makes up a larger part of the US economy than manufacturing, was also discouraging. The services PMI fell to 54.4 in the flash reading for October, slowing to a nine-month low. Though the survey still points to growth that is comfortably above the 50-level that separates expansion from contraction, the last time this measure showed a weaker rise was back in weather-impaired January. Markit’s Chief Economist Chris warned that the outlook is also weak, saying ‘Business optimism slipped to one of the lowest seen since the global financial crisis, and employment growth fell markedly in October. With the survey also finding price pressures to have remained subdued, especially in terms of wages, the sharper than expected slowdown in October will add to calls for policymakers to delay hiking interest rates until the economy finds a firmer footing.’
Tech-giant Apple ($AAPL) reports after the market close tonight. Shares in the company fell more than 3% yesterday.
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