Strong ISM Report Offset by Weak US Construction Data

Talking Points

- The ISM manufacturing index beat expectations with a climb to 57.7 in February.

- However, construction spending in January unexpectedly fell by 1.0% month/month.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

The Institute for Supply Management’s manufacturing index jumped to 57.7 in February from 56.0 in January – well above the 56.2 expected by economists – highlighting the current strength of the US economy. In a report that will provide more ammunition for the hawks on the Federal Open Market Committee, who are now widely expected to increase US interest rates on March 15, the ISM also reported a rise in new orders.

The data, based on a survey of US manufacturers nationwide, showed the new orders index climbed to 65.1from 60.4. However, the prices paid index dipped to 68.0 from 69.0, as expected, while ISM’s employment index eased to 54.2 from 56.1.

Moreover, official figures showed an unexpected drop of 1.0% in construction spending month/month in January rather than the 0.6% increase analysts had predicted – although that was partly offset by a revision in the December number to plus 0.1% from the minus 0.2% previously reported.

Still, taken together, the latest data suggest that the current robust expansion in the US economy is continuing. Also, prices paid remain close to their highest levels since 2011, suggesting that further consumer price increases are on the way and that the FOMC will respond by tightening monetary policy if not this month then in June.

The economic background therefore remains broadly positive for the Dollar against most other currencies.

Chart: Dollar Index 5-Minute Timeframe (March 1, 2017)

Source: IG

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

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