Forex News – US factories humming along ISM shows
January 3, 2014 1:03 pmVideo
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(click to enlarge)
The Institute of Supply Management’s (ISM) release of the December manufacturing survey was one of the very first economic releases of the first trading day of 2014. The ISM manufacturing and non-manufacturing surveys have a good track record of predicting economic growth in the United States and are therefore very interesting to economists and market participants more widely.
The ISM manufacturing figure came exactly in line with expectations at 57, which was a small drop from the previous month’s 57.3 – the highest reading for 2 ½ years. Nevertheless, the December survey number was the second highest of 2013 and it represented another stepping stone for the amazing turnaround of the US manufacturing sector in the second half of 2013 after it briefly contracted for a single month during May. The reading for May of 2013 was 49 – below the 50 expansion / contraction limit.
As can be seen from the chart, the 57 figure is relatively high and shows robust expansion. However, it’s worth keeping in mind that it is still slightly lower than the near-60 level recorded by the manufacturing survey during the economic recovery of the early months of 2010 and 2011.
Some of the components of the report were also particularly encouraging. The new orders component; an indication of future manufacturing activity, was very strong at 64.2, while the employment index at 56.9 showed that manufacturers are expanding their workforce and helping to create new jobs. Prices paid also increased, reaching 53.5 compared to the previous month’s 52.5 although their level is not yet worrying for inflation.
The euro made its high of the session around 1.3675 just before the release of the report but subsequently retreated to the 1.3650-1.3660 area. As the report was in line with expectations it did not move foreign exchange markets much in its aftermath. In a longer time frame however, an improving US economy should help the Federal Reserve to gradually withdraw or “taper” stimulus and this could help the US dollar to climb higher according to a number of analysts.
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