Continued Expansion for the Manufacturing Sector
At 59.0, the ISM manufacturing survey result provides further evidence of a continued expansion in the U.S. manufacturing sector and thereby supports the case for continued overall economic growth (top graph). Our outlook is for four percent growth in industrial production for the second half of this year.Production came in at 64.5, with gains in 15 out of 17 industries. This was the sixth consecutive month of expansion in the production index which reinforces the view of sustained growth in the manufacturing sector. Industries reporting improvement included fabricated metals, machinery, paper, plastics, chemicals and computer/electronics. Electrical equipment production was softer.
In another signal of continued growth, the employment index came in at 58.1, with 14 of 18 industries reporting improvement. These industries include fabricated metals, machinery, plastics, chemicals, computers & electronics and transportation equipment. We expect another positive print for manufacturing employment when nonfarm payrolls are released Friday.
New Orders: Strongest Since January 2004
New orders (middle graph) rose to 66.7 from 63.4 and this represents the fourth consecutive monthly improvement in orders. Gains were in 14 of 16 industries, with expansion in machinery, plastics, chemicals, transportation equipment, paper and fabricated metals. The new orders index indicates forward momentum in the economy. This indication is reinforced by the increase in the new export orders index and the backlogs index as well. Given the lack of conviction in business spending earlier this year, this is a welcome development. This report signals a bigger contribution from equipment outlays than the more modest growth environment we have been expecting.Prices Paid: Continued Signal of Rising Input Pressures
Amid renewed attention to inflation, the prices-paid measure from the ISM takes on a greater level of significance. We learned today that the prices paid index registered 58.0 and has been at or above this level for the past four months, which is consistent with rising prices (bottom graph). Moreover, the prices-paid measure has been above its 12-month moving average for the past seven months.This pricedynamic presents a challenge to corporate profits. Of the 18 manufacturing industries followed in the ISM report, 9 of them reported paying increased prices. These prices-paid indicators corroborate other signs of rising inflation pressures in the U.S. economy and strike us as more than noise. The Fed will likely revise its economic and inflation higher forecasts later this month for 2014 and 2015.
Recommended Content
Editors’ Picks
AUD/USD remained bid above 0.6500
AUD/USD extended further its bullish performance, advancing for the fourth session in a row on Thursday, although a sustainable breakout of the key 200-day SMA at 0.6526 still remain elusive.
EUR/USD faces a minor resistance near at 1.0750
EUR/USD quickly left behind Wednesday’s small downtick and resumed its uptrend north of 1.0700 the figure, always on the back of the persistent sell-off in the US Dollar ahead of key PCE data on Friday.
Gold holds around $2,330 after dismal US data
Gold fell below $2,320 in the early American session as US yields shot higher after the data showed a significant increase in the US GDP price deflator in Q1. With safe-haven flows dominating the markets, however, XAU/USD reversed its direction and rose above $2,340.
Bitcoin price continues to get rejected from $65K resistance as SEC delays decision on spot BTC ETF options
Bitcoin (BTC) price has markets in disarray, provoking a broader market crash as it slumped to the $62,000 range on Thursday. Meanwhile, reverberations from spot BTC exchange-traded funds (ETFs) continue to influence the market.
US economy: slower growth with stronger inflation
The dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.