U.S manufacturing sector jumps out of contraction after five months

Thanks
to a sharp increase in new orders, factory activity in the United States expanded
in January. The manufacturing sector remained in contraction in the past five months
in a row due to which experts had anticipated it to remain in contraction this
month as well. Printing better than the expectation, however, the reading
hinted at the business
investment in the U.S slowly starting to pick back up.

The
Institute Of Supply Management (ISM) Revealed Manufacturing PMI At 50.9 In
January

The
Institute of Supply Management (ISM) revealed the manufacturing purchasing
managers’ index (PMI) on Monday. Recording 50.9 versus the analysts’ estimate
of 48.5 for January, the index posted its best reading since July 2019. In
December, the reading was capped at 47.9 for manufacturing PMI.

As
a standard, PMI under 50 is considered contraction and over it is seen as expansion.
Accounting for 11% of the United States economy, the manufacturing sector has
returned to expansion territory after keeping under 50 for 5 consecutive
months.

Much
of the improvement in the manufacturing PMI, as per the analysts, is attributed
to the progress of the U.S – China trade deal. While the deal has been signed
last month, it still highlighted $360 billion worth of Chinese goods to still
be prone to tariffs that is expected to translate into further pressure on the
manufacturing sector in the upcoming months, as
per economists.

New
Orders Sub-Index Surged To 52.0 In January Versus 47.6 In December

According
to the revised data for December, the new orders sub-index noted 47.6 last
month. In January, however, the sub-index surged to 52.0 in January that marked
its best since May 2019. January also saw manufacturers paying more not only
for the raw materials but also for a range of other inputs. With prices paid
reaching a 10-month high, the data hinted at inflation pressure starting to
build up at the factory level.

The factory employment index, as per ISM, jumped to 46.6 in January. The revised data for December caps it at 45.2. In fiscal 2019, only 46,000 new positions were created at the factory level versus 264,000 in 2018. Monday’s data, therefore, suggested that payrolls in the manufacturing sector are expected to keep under pressure in the upcoming months.

The forex market didn’t respond too aggressively to the economic data on Monday. EUR/USD continued to trade around 1.1050 after the release of the ISM manufacturing PMI.