US Manufacturing Cools from Three-and-a-half Year High

In its stead, there are those that believe manufacturing, trade and to some extent capital spending will fill in the gap and carry growth until consumer spending once again can charge another upswing in economic activity. And, considering the general pace of factory activity in the US economy, we may have a source for stability if not positive growth.

Today, the US ISM manufacturing survey for November contracted more than expected on significant declines in production, employment and prices paid figures. The headline figure was expected to slip 0.7 points from October’s 55.7 reading. Instead, the indicator would fall 2.1 points to a reading of 53.6. In years past, this would have been a significant enough surprise for the dollar to produce a significant reaction. However, in current economic conditions and market tastes, this reading is simply a small component in a larger whole. For currency traders today, there are two primary fundamental concerns: an economy’s relative pace of growth and the time frame for a return to hawkish interest rate policy. Having little direct influence on rate hikes, this data does contribute to the growth outlook; but a monthly pull back has to be put into its broader context. In the past year, the activity gauge has steadily climbed from a severely depressed level of 32.9 (anything below a 50 reading denotes a contraction) to three-year highs. This is still reflective of an overall improvement and notable contribution to growth.

It is further important to take stock of the details to the reading as the component data can often highlight the areas of strength and weakness that will define the pace of the sector and perhaps the health of abutted constituents of the economy. Looking at the breakdown of the survey, the most notable contractions would come from production and employment. The underlying force of the reading, the production figure is shaped much like the headline reading and showing general improvement with time while the leading employment figure (one of the leading indicators to this Friday’s NFPs) is still holding above the 50-level (at 50.8) to reflect a pace of expansion that can support the high costs of hiring. Other changes that should be noted include a 15-month high in export orders, a sharp drop in inventories and 10 point drop in the prices indicator to 55.0.