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The Institute for
Supply Management’s (ISM) monthly sentiment survey showed that U.S.
manufacturing returned to expansion in January. The PMI registered 50.9%, up 3.1 percentage points (PP) from
the revised December reading.
(50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of
U.S. employment and about 20% of the overall economy. Production (+9.5PP),
exports (+6.0PP), new orders (+4.4PP) and imports (+2.5PP) all flipped into
positive territory.
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The
pace of growth in the non-manufacturing sector -- which accounts for 80% of the
economy and 90% of employment -- accelerated (+0.6PP, to 55.5%). Imports
(+7.1PP), business activity (+3.9PP) and new orders (+0.9PP) drove the
increase.
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Of the industries we track, only
Paper Products and Real Estate did not expand. Respondent comments included the
following:
Construction
-- "1Q sales are improving, which makes us more optimistic."
Real Estate
-- "Customer inquiries are strong to start the new year."
Relevant commodities:
Priced higher -- Oil,
propane, and labor (general and construction).
Priced lower -- Freight, natural
gas, and fuel (including diesel)
Prices mixed -- None.
In
short supply -- Construction contractors and subcontractors; and labor (general,
construction and temporary).
As
has become common in recent months, findings of
IHS Markit’s
January surveys were mixed relative to their ISM counterparts.
Manufacturing -- Manufacturing growth slows at start of 2020 as
exports fall.
Key findings:
*
PMI dips to three-month low as exports fall
* Employment rises at only a marginal rate
* Business confidence picks up to seven-month high
Services -- Business activity growth accelerates to 10-month
high at start of 2020.
Key findings:
*
Faster upturn in output amid sustained rise in new orders
* Rate of job creation quickest since last July
* Business confidence remains subdued
Commentary
by Chris Williamson, Markit’s chief business economist:
Manufacturing -- "U.S. manufacturing limped into 2020, with
falling exports dampening output growth and causing a pullback in hiring. The
survey data are consistent with factory production falling moderately, meaning
the manufacturing sector looks set to act as a drag on the overall economy once
again in 1Q.
“Weakness
looks broad-based. Rising demand from households has helped support production
in recent months, but January saw a marked slowing in new orders for consumer
goods. Production of capital goods such as business equipment, plant and
machinery meanwhile fell for the first time in almost four years, hinting at
weakened business investment.
“More
encouragingly, business expectations for the year ahead perked up, coinciding
with an easing of trade tensions and the signing of new North American and Chinese
trade deals. Companies are therefore expecting the soft patch to be
short-lived, though fears surrounding the Wuhan coronavirus and any further
potential escalation of trade tensions could erode this optimism.”
Services -- "The PMI data indicate that the U.S. economy
is ticking along at a steady but unspectacular annualized rate of growth of
approximately 2% at the start of 2020. Growth has gained some momentum from the
lows seen in the fall as the service sector enjoys stronger growth and
manufacturing has also shown signs of the trade-led downturn easing. However,
factory activity remains worryingly subdued, and optimism about future growth
across the business community as a whole continues to run at one of the lowest
levels seen over the past decade.
“Business
are concerned by the prospect of weaker economic growth at home and abroad in
the coming year, especially with spending potentially being dampened in an
election year. Fresh worries are also likely to appear. With the vast majority
of the survey data having been collected prior to the 24th January, we’ve yet
to see any impact from the Wuhan coronavirus outbreak, but the potential
disruption to business and the associated financial market jitters pose
additional downside risks to both the global and US economies in coming
months."
Commenting
on the J.P.Morgan Global Composite PMI, Olya Borichevska, from Global Economic
Research at J.P.Morgan, said:
“The
global economy started 2020 on a stronger footing, with output growth rising
for the third straight month to its highest since March [2019] suggesting
global growth at an above-potential pace. However, we brace ourselves for a
much weaker outcome this quarter as the outbreak of the nCoV virus disrupts
activity in China and potentially around the world. Encouragingly, the gains in
the PMI were not just confined to the Output Index, with trends in new orders,
business sentiment and employment also firming.”
The foregoing comments represent the
general economic views and analysis of Delphi Advisors, and are provided solely
for the purpose of information, instruction and discourse. They do not
constitute a solicitation or recommendation regarding any investment.
