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    US Manufacturing PMI’s: cause for alarm?

    The US purchasing managers indices (PMI) disappointed in April. Manufacturing PMI, released by the Institute for Supply Management (ISM) remained at the eighteen-month low of 51.5, confounding the Wall Street Journal economists’ consensus forecast, which expected growth to 52. Thus, we haven’t seen any positive dynamics from the index for six months, since October 2014. Another US manufacturing PMI (released by Markit) fell from 55.7 to 54.1.

    However, judging by the ISM report details, there is a feeling that the worst is behind us. In any case, many of the components inspire hope for a speedy recovery:

    • production rose from 53.8 to 56.0,
    • exports – from5 to 51.5,
    • new orders – from8 to 53.5,
    • input prices – from 0 to 49.5.

    Thus, we see the growth in orders, production and exports. Input prices have slowed their sharp decline. All these are positive signals. Moreover, the decline of the inventories sub-index from 51.5 to 49.5, may be also regarded as a positive sign, as it indicates the growth in demand. It is also important that the ISM survey has shown the improvement in 15 of the 18 branches of American industry. In fact, if not for the employment index, which fell from 50.0 to 48.3 points, the US manufacturing PMI could have reversed up in April…

    So, maybe, the PMI ISM has already reached the “bottom”, and in May we will see the beginning of its recovery? In my opinion, we have all reasons to expect the index to recover in the last month of spring. However, will this recovery be sustainable? We can’t be 100% sure about it, and here’s why.

    I noticed that manufacturing PMI by Markit showed outperformance compared to the same index by ISM in the past year (see. Charts 1 and 2).

    1

    2

    • Markit PMI experienced a continuous decline from September to December, and ISM PMI – from November to March.
    • After several months of falling Markit PMI stabilized in January, while for the ISM index this stabilization took place in April.

    Then, in February and March, we saw Markit PMI growth, but in April the indicator fell sharply. Analysts described it as the “loss of momentum in the US manufacturing.” Now there’s a chance that in the next three months the ISM PMI may register the same dynamics: growing in May and June, and then recommencing its decline after this small wave of growth.

    It’s worth noting that decrease of business activity in manufacturing sector in April was not only registered in the United States. For example:

    – China’s HSBC PMI fell from 49.6 to 48.9, which was weaker than the preliminary reading of 49.2;

    – Eurozone manufacturing PMI fell from 52.2 to 52.0;

    – British manufacturing PMI fell from 54.0 to 51.9, while analysts expected it to increase to 54.5.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!

    The US purchasing managers indices (PMI) disappointed in April. Manufacturing PMI, released by the Institute for Supply Management (ISM) remained at the eighteen-month low of 51.5, confounding the Wall Street Journal economists’ consensus forecast, which expected growth to 52. Thus, we haven’t seen any positive dynamics from the index for six months, since October 2014. Another US manufacturing PMI (released by Markit) fell from 55.7 to 54.1.

    However, judging by the ISM report details, there is a feeling that the worst is behind us. In any case, many of the components inspire hope for a speedy recovery:

    • production rose from 53.8 to 56.0,
    • exports – from5 to 51.5,
    • new orders – from8 to 53.5,
    • input prices – from 0 to 49.5.

    Thus, we see the growth in orders, production and exports. Input prices have slowed their sharp decline. All these are positive signals. Moreover, the decline of the inventories sub-index from 51.5 to 49.5, may be also regarded as a positive sign, as it indicates the growth in demand. It is also important that the ISM survey has shown the improvement in 15 of the 18 branches of American industry. In fact, if not for the employment index, which fell from 50.0 to 48.3 points, the US manufacturing PMI could have reversed up in April…

    So, maybe, the PMI ISM has already reached the “bottom”, and in May we will see the beginning of its recovery? In my opinion, we have all reasons to expect the index to recover in the last month of spring. However, will this recovery be sustainable? We can’t be 100% sure about it, and here’s why.

    I noticed that manufacturing PMI by Markit showed outperformance compared to the same index by ISM in the past year (see. Charts 1 and 2).

    1

    2

    • Markit PMI experienced a continuous decline from September to December, and ISM PMI – from November to March.
    • After several months of falling Markit PMI stabilized in January, while for the ISM index this stabilization took place in April.

    Then, in February and March, we saw Markit PMI growth, but in April the indicator fell sharply. Analysts described it as the “loss of momentum in the US manufacturing.” Now there’s a chance that in the next three months the ISM PMI may register the same dynamics: growing in May and June, and then recommencing its decline after this small wave of growth.

    It’s worth noting that decrease of business activity in manufacturing sector in April was not only registered in the United States. For example:

    – China’s HSBC PMI fell from 49.6 to 48.9, which was weaker than the preliminary reading of 49.2;

    – Eurozone manufacturing PMI fell from 52.2 to 52.0;

    – British manufacturing PMI fell from 54.0 to 51.9, while analysts expected it to increase to 54.5.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!


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