Mixed December PMI Reports Hint at Further Uncertainty
- Manufacturing Beats and Services Miss Forecast
- Uncertainty and slowdowns in the path of economic recovery are high
- Mixed economic data may weigh on FOMC decision
December PMI Mixed; Manufacturing Up and Services Down
Services PMI prints at 55.3 versus the forecast of 55.9, Manufacturing PMI prints at 56.5 versus the forecast 55.7, and Composite PMI prints at 55.7.The Services PMI’s miss is especially concerning, as service activity accounts for around 75% of US GDP.
US PMI REPORT (IHS MARKIT) - December 2020
The mixed US PMI data comes at the heels of surprisingly strong European numbers. Europe’s PMI prints for December saw beats across the board, with manufacturing printing at 55.5 (forecast = 53), services at 47.3 (forecast = 41.9), and the composite at 49.8 (forecast = 44). In the US, services face greater pressure from a resurgence in COVID cases. While US states have mostly not resorted to lockdowns like the ones implemented in parts of Europe, rising cases still weigh negatively on service activity. On the other hand, Manufacturing printed higher than expected, suggesting that this sector of the economy is better equipped to handle rising virus cases.
PMI prints above 50 denote an expansion and below 50 denote a contraction. Services and Composite PMIs dipped into contractionary territory in February, followed in March by Manufacturing. All three bottomed in April before sharp rebounds through May and June. In July, all three crossed back into expansionary territory and have remained there since. While August, September, and October prints remained relatively flat, November’s saw new pandemic highs for the indices. Forecasts for December expected declines in all three indices, so today’s increase in Manufacturing and decline in Services suggest further uncertainty about the path of economic recovery.
The mixed PMI data comes shortly after a large miss on retail sales data (-1.1% actual vs. -0.3% forecasted). Leading into the holiday season, a retail sales miss is worrying for the overall health of the economy. Other economic signs remain mixed. Consumer sentiment and inflation expectations have risen to strong levels, but jobless claims remain elevated, COVID cases continue to rise, and progress on a fiscal relief bill is uncertain. All of these factors will be on the minds of the FOMC as they meet today.
The dollar had already fallen to fresh two-year lows this morning. Europe’s strong PMI prints sent EUR/USD to new highs. There was a muted reaction in the dollar index following the mixedPMI prints. Since March, the dollar has remained on a long downtrend. Potential further moves in the dollar remain focused around today’s FOMC meeting.
EUR/USD One-Minute Chart
Chart prepared by Izaac Brook; EUR/USD on Tradingview
--- Written by Izaac Brook of DailyFX.com
