PMI & Employment Data Point To Further Strength
The I nstitute for S upply M anagement (ISM)'s PMI surveys have come in strong in recent mon ths with July prints confirming the continued improvement in both manufacturing and services. Manufacturing PMI surged from 50.9 in June to a 55.4 in July , its strongest reading since June 2011, while the services component reached a dizzying 56.0 in July, up from 52.2 in the previous month. These reading s confirm our view of a pickup in growth in the second half of the year and into 2014.
Sub-c omponents Point To Further Gains
The sub - components of the individual PMI indices also point to further strength. M anufacturing 'new orders' came in at 58.3 in July (up from 51.9 in June) while the 'employment' sub - component came in at a 54.4 in July, a sharp improvement from the 48.7 reading in the prior month. Given that these are leading indicators, the prints suggest that the manufacturing sector will continue to expand. Moreover, the services sub - components also had strong readings with the 'new orders' and 'employment' registering 57.6 and 53.2, respectively in July .These PMI readings also chime well with the employment data, whichpoints toa strengthening labour market. Indeed, although non-farm payrolls came in slightly below expectations in July at 162,000 (vssurvey expectations of 185,000),theunemploymentratefell to 7.4%. The unemployment rate is moving towards the 7.0% mark, an approximate levelat which pointthe Fed could start ending asset purchases, which chimes with our view for the tapering of QE in Q413.Indeed,ourback of the envelope calculations suggest that unemployment could hit the 7.2%-7.0% level by Q413-Q114 and 6.5% (Evansrule) by Q115, which chimes well with our forecast for interest rate hikes in 2015.
|PMI Readings Pointing To Further Gains|
|US - Manufacturing & Non-Manufacturing PMI|