Manufacturing Data Suggests Slowing Growth
August 1, 2012
According to Citi Economics, the July ISM (Institute for Supply Management) composite index was in at 49.8, slightly weaker than the consensus expectations of 50.1.
Orders increased to 48.0 from 47.8 and production edged higher to 51.3 from 51.0. However, export orders fell to 46.5 from 47.5 and import fell to 50.5 from 53.5.
This marked the lowest reading for the measure since April 2009, highlighting the loss of one growth driver for the U.S. over the past two years.
The research was pessimistic about future manufacturing and said that it needed a demand side boost.
We believe recent signs of decelerating U.S. consumer spending – along with the recent weakness in export surveys – suggest a much more constrained outlook for manufacturing until there’s a demand revival.
In a separate Citi report, the ADP payroll data release showed a 163,000 increase in private employment in July much higher than the consensus of 120,000. The research suggested that private non-farm payrolls to be released on Friday could show similar signs.
We would see the stronger-than-consensus July ADP reading as somewhat supportive of our 140,000 estimate for total non-farm payrolls and 150,000 increases in private hiring in Friday’s report.
According to Deutsche Bank’s Global Macro Research, July Euro-area manufacturing sector Performance of Manufacturing Index (PMI) fell to 44.0, the lowest level since June 2009. However, this does not portray a complete picture of the economic situation.
The July manufacturing PMIs seem to suggest that manufacturing sectors in Germany and France are starting to feel the impact of the crisis as much as their counterparts in the peripherals. Clearly, this does not mean that the overall economic performance in the two large euro-area countries will be on average as bad as, or worse than, that in the peripherals; Germany’s and France’s services should continue to fare better, as they do not face the same crunching fiscal consolidation and high borrowing costs for the private and public sectors alike.
One big surprise was Ireland which continues to show remarkable improvement in its PMI. Ireland’s PMI increased to 53.9 in July up 0.8 points.
This is the fifth month in row with a reading above 50, the highest level since April 2011 and close to 11 points above Germany’s reading. Even when compared to the respective long term averages, Ireland’s manufacturing PMI appears in a healthier position.
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