ISM manufacturing declined one index point to 50.8 in April from 51.8 in March. The fall in ISM manufacturing in April came after a sharp rebound in the last couple of months and looking at the details we still think it was a decent release showing that manufacturing sector has stabilised after some difficult months by the end of 2015 and at the beginning of the year.
Although new orders and production both declined in April, they stayed at levels not seen since the year-end 2014. It is also noticeable that new export orders rose to 52.5 from 52.0, the highest level since November 2014. The weaker USD and stabilisation in China likely play a role here.
The employment subcomponent increased to 49.2, the highest level since November last year. Although this suggests that the job losses in the manufacturing sector continued in April, they should have done so at a slower pace. So also the correction in manufacturing employment seems to have come to an end.
The inventory correction continued as customer inventories fell to 46.0 from 49.0. The combination of still high new orders and low inventories suggests that ISM manufacturing should go higher in the coming months.
Still we think ISM manufacturing is likely to stay subdued slightly above 50 in the coming months, but looking 3M-6M ahead we expect it to move higher. Weaker USD, stabilisation in China, lower credit spreads, an end to the inventory adjustments and the higher oil price are all supportive for the US manufacturing sector.
In terms of releases this week, we are looking forward to the ISM non-manufacturing on Wednesday and the jobs report for April on Friday. While ISM manufacturing is important for sentiment, we think that the Fed is looking for signs in the ISM non-manufacturing index that we should see a rebound in Q2 GDP growth after the significant slowdown in Q1. We expect nonfarm payrolls rose 210,000 in April (consensus: 200,000), more or less in line with the recent trend, leaving the unemployment rate unchanged at 5.0% due to the increasing labour force. As long as employment continues to rise at a solid pace, we think the Fed has its eye on things other than employment growth such as wage inflation. We would keep an eye on average hourly earnings, which we estimate rose 0.25% m/m in April, implying an unchanged wage inflation rate at 2.3% y/y.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
Google starts indexing Bitcoin addresses
Bitcoin address data is live on Google search results after users realized on Thursday that the tech giant started indexing Bitcoin blockchain data. However, mixed reactions have followed the tech giant's reversed stance on the cryptocurrency.
A Hollywood ending for fourth quarter GDP
The latest revisions put Q4 GDP at 3.4%, the second fastest quarterly growth rate in two years. Much of the upside was attributable to stronger consumer spending, yet fresh profits data affirmed it was a good quarter for the bottom line as well with profits up by the most since the Q2-2022.