• PMI for services forecast to be unchanged in January.
  • Manufacturing PMI rebounded unexpectedly last month.
  • US-China trade agreement bolsters factor sector.

The Institute for Supply Management (ISM) will release its Non-Manufacturing Purchasing Managers' Index (PMI) for January at 15:00 GMT, 10:00 EST, Wednesday February 5th.

Forecast

Services PMI is predicted to rise to 55.1 in January from 55.00 in December. Employment is expected to be unchanged at 55.2.  New orders are predicted to rise to 58 in January from 54.9 in December.  Prices paid is projected to increase to 53.3 from 51.7.

ISM business sentiment

Business confidence has been falling for over a year in the surveys from the Institute for Supply Management (ISM).   

The overall purchasing managers’ index (PMI) in the service sector fell from 59.7 in February to 52.6 in September and 53.9 in November but rose to 55 in December and is forecast to be 55.1 when the January figures are issued on Wednesday. 

Employment and new orders PMIs bottomed at 51.7 in September and 47.2 in November.  Each has recovered in December, employment to 55.2 and new orders to 54.9.  The new orders recovery is projected to continue in January.

Even though the impact of the China trade dispute was greater in the smaller manufacturing sector, about 12% of US GDP, sentiment there climbed in January.

Overall manufacturing PMI had slipped below the 50 division between expansion and contraction in August. It stayed there for five months and had been forecast to rise slightly to 48.5 in January.

In reality sentiment bounced above the 50 demarcation to 50.9 in January. Employment PMI which had been negative for the same period rose to 46.6 and new orders jumped to 52 from 47.6, a rise to 50.8 had been forecast. The production index soared 9.5 points to 54.3 and new export orders added 6 points to 53.3.

Manufacturing PMI

FXStreet

January’s return to positive in factory manager sentiment likely stemmed from the signing of the long anticipated and much delayed US-China trade pact and the consequent reduction in trade tensions between the nations.

As the survey said, ““Comments from the panel were positive, with sentiment improving compared to December. The PMI® returned to expansion territory for the first time since July 2019.”  In previous surveys execuitives had  repeatedly voiced their concerns over the trade war.

The January ISM survey was conducted throughout the month with the questionnaires sent early and often returned late.  

China’s health crisis has been in evidence since the beginning of the year but has not as yet had an appreciable impact on sentiment. It is possible that will change as the impact of the crisis on the Chinese economy, the US and the globe becomes clear.

With the US economy expanding at a steady 2% pace since the first quarter it was the actual and feared impact of the China trade dispute that had brought business spending to a near standstill.   

US GDP, consumers and the labor market

Economic growth in the US waned somewhat in 2019 expanding 2.3%, the slowest pace in three years following 2.9% in 2018.  After 3.1% in the first three months growth was unchanging for the next three quarters, 2.1% in the second, 2.0% in the third and 2.1% again in the fourth.  The US is in its record 11th straight year of growth the longest span in its history. 

US GDP, Annualized

FXStreet

Consumer spending has continued to be the main support of the economy backed by a strong labor market and rising wages. The retail sales control group which is the consumption component of the Bureau of Economic Analysis’ GDP calculation averaged a 0.33% monthly gain from February to December.

Business spending has declined sharply in the second half of the year as the collapse in sentiment took its toll on planning and the willingness to undertake risk.

The durable goods grouping non-defense capital goods excluding aircraft, a standard proxy for business investment, declined from a .567% monthly average in June to 0.017% in December.  Overall business investment shrank for the three quarters to the end of the year, the worst investment performance since 2009. 

Reuters

Job creation moderated in 2019 from its exceptional performance the prior year.  Non-farm payrolls fell 26% from 235,000 in the 12-month moving average in January to 174,000 by year’s end.   Yet hiring easily remained strong enough to keep wages rising. December’s 2.9% annual gain was the first below 3% in 15 months.

Conclusion and the dollar

The unexpected rise in manufacturing PMI in January bodes well for the larger services sector, which, at any rate, was never as deeply affected by the China trade war as was its smaller confederate.

If the trade agreement lives up to its press and helps to restore confidence and spending in the business sector, then adding that to the still expansive consumer should produce a return to 3% annual GDP and a further improvement in business sentiment.

The dollar would be the direct beneficiary as economic comparison returns to mediate direction in the currency markets.

For the moment the China health crisis, as difficult as it may be, has not generated commensurate difficulties for the US or global economies.

 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD drops towards 1.1300 on dovish ECB headlines

EUR/USD is extending the drop towards 1.1300 after the ECB is debating over a potential increase in the APP at its meeting next week. The US dollar rebounds amid a cautious mood. Omicron, US-China woes keep investors on the edge.

EUR/USD News

GBP/USD battles 1.3200 amid Omicron jitters, USD rebound

GBP/USD is trading flat around 1.3200, struggling to capitalize on the overnight goodish rebound from a one-year low. Fresh COVID-19 jitters pushed back BoE rate hike expectations and undermined the pound. Resurgent USD demand further stalled aggressive bullish bets.

GBP/USD News

Gold eases towards $1,780 on resurgent USD demand

Gold remains on the back foot below $1,790 amid broad US dollar reboud. Market sentiment dwindles as virus-linked news battles geopolitical fears, Fed rate hike concerns. Friday’s US CPI becomes crucial as inflation expectations improve.

Gold News

Analysts believe Ripple could beat SEC lawsuit on one condition

Experts are weighing in on the possible closure of the payments giant's lawsuit with the SEC. Analysts predict that the payment giant's win in the SEC vs. Ripple case could push XRP to a new high.

Read more

Cyber Monday 2021 Discounts!

Glued to your trading screen on Cyber Monday? Upgrade your skills by signing up for FXStreet’s Premium service, offered at a discount of up to 50%. Fellow traders have already taken advantage of Black Friday profits. What about you? 

Subscribe now!

Majors

Cryptocurrencies

Signatures