U.S factory activity remained in contraction for the fourth month in a row

U.S factory activity remained in contraction for the fourth month in a row
Written by:
Michael Harris
March 11, 2020
  • The U.S ISM manufacturing PMI dropped to 48.1 in November.
  • New orders, export orders, factory employment sub-indices remained under pressure.
  • U.S dollar index dropped below 98.00 mark again. Eur/Usd and Gbp/Usd reported trading higher.

The U.S economy has previously shown signs of modest improvement amidst the U.S – China trade tensions. While China printed better than expected figure for factory activity in November, the United States of America has unexpectedly lagged behind the analysts’ forecast. Construction spending in the U.S was also reported to have dropped in November.

ISM Manufacturing PMI Dropped To 48.1 In November

Last month’s (October) upbeat data had seen the economists revise their estimate for Q4’s gross domestic product for the better. For November, the analysts were expecting the figure to improve further from October’s 48.3 to 49.2 this month. Against the expectations, however, the Institute of Supply Management (ISM) announced the manufacturing purchasing managers index (PMI) at 48.1 which is lower than the forecast as well as the figure for last month.

A figure below 50 for the ISM manufacturing PMI represents contraction in a segment of the U.S economy that accounts for almost 11% of it. According to the analysts, if the manufacturing PMI continues to decline in the subsequent months and drops below 42.9 mark, it will be translated as recession in the U.S economy at large.

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Experts have also highlighted that owing to the imminent phase 1 deal between the United States and China, the business sentiment has improved in November as per the ISM, however, November marks the fourth month in a row that the U.S economy has remained in contraction (below 50). It was further added that persistent contraction in the manufacturing sector is likely to pose a new challenge for the U.S Federal Reserve that placed the monetary policy on halt following the third rate cut for the year in October.

New Orders, Export Orders, Factory Employment Sub-Indices Remained Under Pressure

According to Economists, a broader trade deal between the two largest economies of the world is required for the U.S manufacturing sector to rebound. The new orders sub-index, the ISM reported, has declined to 47.2 in November from a significantly higher 49.1 in October. Export orders, on the other hand, were recorded at 47.9 (2.5 points drop), while factory employment index registered 46.6 for November (1.1 points drop).

Following the ISM’s report, the response in the forex market was evident. EUR/USD jumped from around 1.1030 and printed a daily high of around 1.1090. Cable was also reported upbeat following the report and hiked from around 1.2920 to 1.2945. The U.S dollar index dropped below the 98.00 level again. With a loss of 0.36% for the day, the index was last seen trading around 97.80.