The look ahead: Euro zone braces for recession; US job outlook; China manufacturing

With the UK already in a double-dip recession and the euro zone expected to follow suit in the third quarter, financial markets are waiting to see whether Europe’s central banks will extend helping hands.

Policymakers at the Bank of England (BoE) and the European Central Bank will meet separately September 6th to consider stimulus plans in the form of government bond purchases.

Fuelled by the euro-zone debt crisis and austerity measures, the UK economy has contracted three quarters in a row. GDP decreased 0.5% in the second quarter, slightly less than the 0.7% contraction originally estimated.

To boost economic activity, the BoE committed $78 billion in July to buy British government bonds and provide UK banks with cheap financing if they lend to homebuyers and businesses. But it is unclear whether policymakers will extend the central bank’s asset purchase programme.

On September 6th, Eurostat will release updated estimates for second-quarter GDP for the region. The euro zone could be close to slipping into recession, according to research firm Markit Economics, which suggests the euro zone’s GDP may contract 0.5% to 0.6% in the third quarter. The 17-country region reported its economy decreased by 0.2% in the second quarter, following a first quarter with flat growth.

Investors expect the ECB to flesh out plans on September 6th to buy troubled euro-zone countries’ debt, which is at the root of the euro-zone crisis, Reuters reported.

US job outlook

The US jobs market will be in the spotlight in the week ahead. Several reports due out will help gauge whether the employment scenario continues to worsen.

On September 7th, the US Bureau of Labor Statistics will release its monthly Employment Situation Report. The US unemployment rate fell slightly to a three-year low of 8.1% in April. But it climbed to 8.3% in July. 

The report will follow the release of the ADP Employment Report on September 6th. Last month, it showed that nonfarm private employment grew by 163,000 during July, up 49.5% from the same month a year earlier.

Outplacement firm Challenger, Gray & Christmas will issue its job-cut report on the same day. Planned job cuts declined in July to the lowest level in 2012, the firm reported last month.

Also on September 6th, the American Institute of CPAs is scheduled to release its third-quarter Business and Industry Economic Outlook Survey. The results will show whether CPA decision-makers had a sunnier disposition. Lower hiring expectations and a steep drop in optimism about the US economy summed up the uncertain mood of CPA financial executives during the second quarter.

Sneak peek at Chinese manufacturing data

The full report comes out September 3rd, but early returns show that “Made in China” is experiencing a slowdown.

Chinese factory activity fell to its lowest rate since November 2011, according to preliminary, or flash, purchasing managers index (PMI) numbers for the month of August. The HSBC Flash China PMI for August was 47.8, reflecting falling export orders and rising inventory. A score of 50 is the dividing line between expansion and contraction.

China’s orders to inventory are at their lowest since December 2008, and foreign orders to inventory dropped to levels not seen since January 2009, Reuters reported. A drop in demand from Europe, which is dealing with its own economic slowdown, is the main driver of the decline in foreign orders.

China’s official, seasonally adjusted PMI was 50.1 for July, the third consecutive month in which the official PMI declined and the lowest rating since November 2011. HSBC’s flash PMI is based on 85% to 90% of survey responses.

Webcast describes disclosure framework

A busy agenda for the US Financial Accounting Standards Board (FASB) will be the highlight of the US holiday-shortened week in public accounting.

FASB will hold a live webcast from 1pm to 2pm EDT September 5th to provide an overview of its disclosure framework project. FASB recently issued an invitation to comment on the project, whose goal is to establish a framework to improve the effectiveness of disclosures in notes to financial statements. Registration is required for the webcast. One hour of CPE credit is available for participants.

In addition, FASB will meet September 5th and 7th to discuss a variety of projects. Insurance, investment companies, transfers and servicing – repurchasing agreements, and reporting discontinued operations all are on the agenda for Wednesday.

The lone topic on the agenda for the September 7th board meeting is impairment in the ongoing accounting for financial instruments project FASB is undertaking with the International Accounting Standards Board (IASB). FASB also will meet with its Not-for-Profit Advisory Committee on September 6th and 7th.

—From CGMA Magazine staff reports.