Breaking: US ISM Manufacturing PMI declines to 47.9 in December vs. 48.3 forecast
Business activity in the United States' manufacturing sector continued to contract at an accelerating pace in December, with the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index declining to 47.9 from 48.2 in November. This print came in worse than the market expectation of 48.3.
In this period, the Employment Index improved slightly to 44.9 from 44 in November, while the Prices Paid Index, the inflation component, remained unchanged at 58.5.
Assessing the survey's findings, "in December, US manufacturing activity contracted at a faster rate, with pullbacks in the Production and Inventories indexes leading to the 0.3-percentage point decrease of the Manufacturing PMI," said Susan Spence, MBA, Chair of the ISM Manufacturing Business Survey Committee.
"Although the demand indicators are still in contraction, improvement in three indexes (New Orders, Backlog of Orders and New Export Orders) and the Customers’ Inventories Index remaining in ‘too low’ territory (and at an accelerated rate) are positive signs for December, but several consecutive months of gains in these indicators are necessary for a longer-term recovery," Spence added.
Market reaction to US ISM Manufacturing PMI data
The US Dollar (USD) Index turned south with the immediate reaction to this report and erased a portion of its daily gains. At the time of press, the USD Index was up 0.15% on the day at 98.57.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.20% | -0.17% | -0.14% | 0.29% | -0.02% | -0.07% | 0.24% | |
| EUR | -0.20% | -0.37% | -0.33% | 0.08% | -0.23% | -0.26% | 0.03% | |
| GBP | 0.17% | 0.37% | 0.00% | 0.46% | 0.14% | 0.10% | 0.41% | |
| JPY | 0.14% | 0.33% | 0.00% | 0.43% | 0.11% | 0.07% | 0.38% | |
| CAD | -0.29% | -0.08% | -0.46% | -0.43% | -0.32% | -0.35% | -0.05% | |
| AUD | 0.02% | 0.23% | -0.14% | -0.11% | 0.32% | -0.03% | 0.26% | |
| NZD | 0.07% | 0.26% | -0.10% | -0.07% | 0.35% | 0.03% | 0.30% | |
| CHF | -0.24% | -0.03% | -0.41% | -0.38% | 0.05% | -0.26% | -0.30% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
This section below was published as a preview of the US ISM Manufacturing PMI data at 06:00 GMT.
- The US ISM Manufacturing PMI is expected to improve slightly to 48.3 in December, but still indicating a contraction in the sector.
- Investors will pay attention to the Prices and Employment subindexes to gauge inflation and labor market trends.
- EUR/USD loses its positive momentum but holds above 1.1700 ahead of the announcement.
The Institute for Supply Management (ISM) is scheduled to release the December Manufacturing Purchasing Managers’ Index (PMI) on Monday. The index is a trusted measure of the health of the United States (US) manufacturing sector, closely followed by market players. It is based on a survey conducted by ISM among companies around the US, and the index revolves around the 50 threshold. A reading above the level indicates an expanding manufacturing sector, while a reading below it indicates contraction.
The December ISM Manufacturing PMI is forecast at 48.3, slightly better than the 48.2 posted in November.
What to expect from the ISM manufacturing PMI report?
The November ISM report showed that economic activity in the manufacturing sector remained in contraction territory for the ninth consecutive month, following a two-month expansion that was preceded by twenty-six straight months of contraction. The index declined to 48.2 from 48.7 in October. Key drivers behind the slide were declines in new orders and employment, although production recovered into expansion territory.
The New Orders Index contracted for a third straight month to 47.4, lower than the 49.4 recorded in October. The Production Index in the same period improved to 51.4 from the previous 48.2. Also, the Prices Index remained in expansion, registering 58.5, up from the previous reading of 58, while the Employment Index came in at 44, down from October's figure of 46.
"The manufacturing sector continues to be weighed down by the unpredictable tariffs landscape," said Stephen Stanley, chief US economist at Santander U.S. Capital Markets.
Market participants will pay close attention to the employment-related sub-index ahead of the Nonfarm Payrolls (NFP) report, scheduled for release on Friday. The labor market is likely to be at the top of investors’ priorities this week, given its influence on the Federal Reserve's (Fed) monetary policy decisions.
The headline reading will also be relevant and likely trigger the initial market reaction. A better-than-anticipated outcome, with a reading above the 50 threshold, should boost demand for the US Dollar (USD), as it would both signal economic progress and diminish the odds of upcoming interest rate cuts. The opposite scenario is also valid, with a discouraging result putting pressure on the Greenback and boosting bets for a March interest rate cut.
When will the ISM Manufacturing PMI report be released and how could it affect EUR/USD?
The ISM Manufacturing PMI report is scheduled for release at 15:00 GMT on Monday. As investors slowly return to their desks from the winter holiday season, the EUR/USD pair maintains its near-term negative tone but holds above the 1.1700 mark. Geopolitical tensions and limited volumes have supported the US Dollar (USD) in the past few days, but not enough to change its bearish bias.
Valeria Bednarik, FXStreet Chief Analyst, notes: “The EUR/USD pair closed November and December in the red, extending its decline in early January. The pair has found near-term buyers around the 1.1700 level, but can pierce it on an upbeat outcome. The ISM Manufacturing PMI, however, needs to print above 50 to provide sustained support for the USD. A slide below the 1.1680 price zone would likely trigger stops and exacerbate the slide, with EUR/USD likely to near the 1.1600 threshold before finding more solid buying interest.”
Bednarik adds: “If the ISM Manufacturing PMI comes below expected and even below the November reading, the USD is likely to edge sharply lower across the FX board. The January 2 high at 1.1765 is the immediate resistance level ahead of the 1.1800 mark. Additional gains could see the pair rallying towards the 1.1860 price zone.”
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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