ISM Manufacturing PMI improves to 49.0 vs. 47.7 forecast

Business activity in the US manufacturing sector continued to contract in September, with the ISM Manufacturing PMI arriving at 49. This reading followed 47.6 in September and came in better than the market expectation of 47.7.

Other details of the report showed that the Prices Paid Index of the survey declined sharply to 43.8 from 48.4 and the Employment Index rose to 51.2 from 48.5. Finally, the New Orders Index edged higher to 49.2 from 46.8.

Commenting on the survey's findings, "the US manufacturing sector continued its contraction trend but at a slower rate, recording its best performance since November 2022," said Timothy R. Fiore, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee. 

"Companies are still managing outputs appropriately as order softness continues, but the month-over-month PMI improvement in September is a clear positive," Fiore added.

Market reaction to ISM Manufacturing PMI

The US Dollar (USD) continues to outperform its rivals after this report. As of writing, the USD Index was up 0.5% on the day at 106.70.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

USD   0.42% 0.40% 0.59% 0.82% 0.17% 0.58% 0.16%
EUR -0.42%   -0.01% 0.16% 0.43% -0.25% 0.18% -0.26%
GBP -0.39% 0.03%   0.19% 0.43% -0.22% 0.19% -0.24%
CAD -0.59% -0.17% -0.17%   0.23% -0.41% -0.01% -0.43%
AUD -0.91% -0.43% -0.50% -0.31%   -0.69% -0.25% -0.72%
JPY -0.21% 0.25% 0.25% 0.43% 0.68%   0.47% 0.00%
NZD -0.58% -0.18% -0.19% -0.01% 0.25% -0.43%   -0.45%
CHF -0.16% 0.26% 0.24% 0.43% 0.70% 0.00% 0.45%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).


Economic Indicator

United States ISM Manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector It is a significant indicator of the overall economic condition in US. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish).

Read more.

Next release: 11/01/2023 14:00:00 GMT

Frequency: Monthly

Source: Institute for Supply Management

Why it matters to traders

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) provides a reliable outlook on the state of the US manufacturing sector. A reading above 50 suggests that the business activity expanded during the survey period and vice versa. PMIs are considered to be leading indicators and could signal a shift in the economic cycle. Stronger-than-expected prints usually have a positive impact on the USD. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are watched closely as they shine a light on the labour market and inflation.

This section below was published as a preview of the ISM Manufacturing PMI report at 09:00 GMT.

  • The US ISM Manufacturing PMI is foreseen at 47.7 in September, improving further after June’s bottom.
  • ISM Prices Paid Index and Employment Index could give hints about the Federal Reserve’s next steps.
  • The risk for a EUR/USD corrective advance increased as the pair has fallen for 11 weeks in a row.

The Institute for Supply Management (ISM) will publish the United States September Manufacturing Purchasing Managers’ Index (PMI) on Monday, October 2. The index is expected to have ticked modestly higher to 47.7 from its previous monthly reading of 47.6. The official Manufacturing PMI has been within contraction levels ever since falling to 49 in November 2022 and slowly moving away from the multi-year low posted last June at 46.

What to expect from the ISM manufacturing PMI report?

Beyond the modest uptick in the headline figure, market players anticipate an improvement in all sub-components. The Employment Index is foreseen at 49 from 48.5 in August, while New Orders are expected to print 47 after posting 46.8 in August. Finally, the ISM Manufacturing Prices is anticipated at 48.9 in September, up 0.5 percentage points from the former reading.

Back in August, the report indicated a ninth month of contraction after a 30-month period of expansion. More relevant, the Prices Index registered 48.4, up 5.8 percentage points compared to the July figure of 42.6. Inflation in the United States (US), as measured by the Consumer Price Index (CPI), rose by more than anticipated in August, while the core Personal Consumption Expenditures (PCE) Price Index – the Federal Reserve (Fed) favorite inflation figure –, met expectations while easing from July,  up 3.9% YoY in the same month. 

A higher-than-anticipated ISM Manufacturing PMI Price Index sub-component, which gauges the price change that US manufacturers pay for its inputs, would hint at persistently high inflation extending into September. That should fuel speculation about at least one more rate hike in the US and support the central banks’ idea of “higher for longer” rates. As a result, the risk of an economic setback should increase, and the US Dollar benefits from a continued run to safety.

Investors will also pay attention to the employment-related sub-component ahead of the Nonfarm Payrolls (NFP) report scheduled for Friday. The tight US labor market is a critical factor when it comes to monetary policy decisions, as it allows the central bank to maintain the restrictive policy. Policymakers see modest signs of loosening labor market conditions, not enough, however, to change the course of monetary policy.

Offering a sneak peek into the US data, analysts at BBH noted: “ISM PMIs will also be important.  Manufacturing PMI will be reported Monday and the headline is expected at 47.9 vs. 47.6 in August. Keep an eye on employment and prices paid, which stood at 48.5 and 48.4 in August, respectively.”

When will the ISM Manufacturing Purchasing Managers’ Index report be released and how could it affect EUR/USD?

The ISM Manufacturing PMI report is scheduled for release at 14:00 GMT on October 2. Ahead of the data, the US Dollar trades near fresh multi-month highs against most major rivals, backed by mounting risk aversion and signs of a resilient American economy.

An upbeat headline should confirm the economy remains strong enough and that the country may dodge a recession. Such speculation should lift the mood and put pressure on the US Dollar, at least in the near term.

Strong inflation and employment sub-components, however, may spur speculation for tighter for longer Fed policy and boost USD demand amid renewed fears.

From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes that “EUR/USD is struggling below the 1.0600 threshold on its road to recovery, as 14-day Relative Strength Index (RSI) indicator continue to sit beneath the 50 level.”

“Any recovery will gather steam on a sustained move above the 1.0650 psychological level, above which the 1.0700 round figure will be on the Euro’s radar. Meanwhile, powerful support aligns near 1.0490, below which a fresh downside will open up toward the 1.0400 mark.”

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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