|

US ISM Manufacturing PMI April Preview: Let the good times roll

  • Manufacturing outlook expected to edge higher from March record.
  • New Orders Index building on the best nine months in four decades.
  • First quarter Retail Sales boost manufacturing optimism.
  • Manufacturing PMI is an indicator for overall economic health.
  • Markets will note but not trade on these PMI figures.

The US manufacturing sector looks to continue its boisterous ways with executive sentiment and new business setting records as the US economy powers out of the pandemic. 

The Purchasing Managers’s Index (PMI) from the Institute for Supply Management is forecast to rise to 65 in April from its 38-year high of 64.7 in March. The Prices Paid Index will dip to 85 from 85.6. New Orders were 68 and the Employment Index was 59.6 in March.

Manufacturing PMI

The production sector has been on a strong upswing for four months. 

The 61.2 average of the last four months for the Manufacturing Purchasing Managers' Index from the Institute for Supply Management is the highest since March 1984. New Orders have averaged 64.7 for the nine months from July through March and that is the highest three-quarters of a year since August  2004.

Reuters

Employment has lagged the general improvement in the manufacturing indexes but the three month average of 55.3 is the best of the pandemic era.

The New Orders Index is the best indicator of the flood of business that has buoyed the factory sector and prompted the near-historic levels of optimism. 

Originating in the spate of delayed orders in the second half of last year after the collapse in March, April and May, the factory order book was given a second fillip by the surge of Retail Sales in the first quarter.  

Reuters

Retail Sales

Aided by the two stimulus awards of $600 in January and $1400 in March and the red-hot job market, US consumers boosted Retail Sales by 4.90% in the first quarter. The  Control Group category that enters the GDP calculation, was scarcely less active, averaging 4.07% for the quarter. Consumer spending accounts for about 70% of US economic activity, with these sales figures it is hardly surprising factory managers are optimistic. 

Retail Sales

FXStreet

Conclusion

The manufacturing sector, though only about 15% of US GDP is considered an indicator for the welfare of the overall economy.  

The waning of the pandemic has not only released a tide of business delayed by last year's lockdowns, but consumers are spending in relief and enjoyment. Congress will pass some version of the Biden administration’s infrastructure bill adding to the flood of spending coming out of the capitol. 

That era of good feeling is likely to last well into the second half as even the die-hard centers of restriction like New York City end their business inhibitions by July 1.

Managers have every reason to expect the good times to last until the end of the year. 

Author

Joseph Trevisani

Joseph Trevisani began his thirty-year career in the financial markets at Credit Suisse in New York and Singapore where he worked for 12 years as an interbank currency trader and trading desk manager.

More from Joseph Trevisani
Share:

Editor's Picks

GBP/USD declines to near 1.3500 as US-Iran tensions rise

The GBP/USD pair declines to near 1.3500 during the early European trading hours on Wednesday. Ongoing tensions in the Middle East provide some support to a safe-haven currency such as the US Dollar against the British Pound. All eyes will be on the US August jobs report later on Friday.

EUR/USD falls to two-week low below 1.1600 on broad USD strength

EUR/USD remains under bearish pressure after closing in negative territory on Tuesday and trades at its lowest level in two weeks below 1.1600 on Wednesday. As tensions in the Middle East escalate further, the US Dollar gathers strength on risk-aversion and hawkish Fed repricing, forcing the pair to stay on the back foot. Later in the day, private sector employment data from the US will be watched closely by market participants.

Gold recovers above $4,300; upside seems capped as Fed bets support USD

Gold recovers early lost ground to a four-week low, and trades above $4,320 heading into the European session. A modest US Dollar pullback is seen as a key factor supporting the commodity, though any meaningful upside seems elusive amid hawkish US Federal Reserve expectations. The escalating Middle East conflict lifted crude oil prices to a fresh high since July 24, stoking inflation fears and reaffirming bets for a Fed rate hike in September.

WTI advances to mid-$90.00s, fresh high since July 24 amid escalating US-Iran tensions

West Texas Intermediate (WTI) – the benchmark US Crude Oil price – scales higher for the third straight day – also marking the fifth day of a positive move in the previous six – and climbs to a fresh high since July 24 during the Asian session on Wednesday.

BoC set to keep interest rates steady despite sticky inflation

The Bank of Canada is widely expected to keep its policy rate unchanged at 2.25% on Wednesday. This would be the seventh consecutive gathering with the central bank sitting on the fence. The BoC left its policy rate unchanged at 2.25% in July, as widely anticipated.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.