PMI Points To Pick-Up In Growth

The US Manufacturing ISM PMI figure for August 2013, of 55.7, was the highest since June 2011 and signalled that economic activity may be picking up significantly. The composition of the index also showed several positive developments, including a new orders figure of 63.2 (the highest since April 2011) and 15 of 18 industries reporting expansion, with the exceptions being industries such as transportation equipment indicating that the government sequester has hurt business. The manufacturing PMI provides a good proxy for real GDP growth, and suggests that headline expansion in August was somewhere in the 3.0% q-o-q annualised range.

Ahead of the nonfarm payrolls employment figure for August, which will be released on Friday, the manufacturing PMI is suggesting that we could see a figure north of the 175,000-180,000 consensus forecast.

Our expectation for a revival in global trade in H213 also appears to be well-placed, with the ISM New Export Orders ( Higher Minus Lower ) pointing to an increase in goods exports through the end of 2013.

Growth Pointing Up
Real GDP % chg y-o-y SAAR And Manufacturing ISM PMI

The US Manufacturing ISM PMI figure for August 2013, of 55.7, was the highest since June 2011 and signalled that economic activity may be picking up significantly. The composition of the index also showed several positive developments, including a new orders figure of 63.2 (the highest since April 2011) and 15 of 18 industries reporting expansion, with the exceptions being industries such as transportation equipment indicating that the government sequester has hurt business. The manufacturing PMI provides a good proxy for real GDP growth, and suggests that headline expansion in August was somewhere in the 3.0% q-o-q annualised range.

Growth Pointing Up
Real GDP % chg y-o-y SAAR And Manufacturing ISM PMI

Ahead of the nonfarm payrolls employment figure for August, which will be released on Friday, the manufacturing PMI is suggesting that we could see a figure north of the 175,000-180,000 consensus forecast.

Employment Should Continue To Strengthen
Nonfarm Payrolls % chg m-o-m Annualised And Manufacturing ISM PMI

Our expectation for a revival in global trade in H213 also appears to be well-placed, with the ISM New Export Orders ( Higher Minus Lower ) pointing to an increase in goods exports through the end of 2013.

Exports Set To Pick Up
US - Net Export Orders (Higher Minus Lower, Lagged 6 Months) And Goods Exports % chg y-o-y

The strong headline PMI figure also suggests that US equities are on fairly steady ground. The PMI level correlates strongly with the year-on-year change in the S&P 500.

PMI Suggests Equities Are Fundamentally Underpinned
US - ISM Manufacturing PMI And S&P 500 % chg y-o-y

The PMI figures suggest some caution on US Treasury yields following their significant rise in the past few months, however. The one-year change in yields suggests that the headline PMI would have to rise to the mid-60s, if the historic relationship between the ISM and yields were to hold. That said, we believe that even if UST yields may have gotten slightly overstretched in the short term, a continued move toward 3.0% later this year for the 10-year instrument would be justified by the fundamentals, not least a slowdown in purchases from the Fed and nominal GDP growth heading back to the 3.0-4.0% area.

Yield Spike May Be Slightly Overdone
US - 1-Year Change In 10-Year UST Yield, pp, And Manufacturing PMI, % chg

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This article is tagged to:
Sector: Country Risk
Geography: United States, United States, United States, United States
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