The flash Markit US PMI manufacturing index, released Wednesday, strengthened to 53.9 for November from 53.4 the previous month. The figure was higher than the consensus forecast of 53.4 and also the highest reading for 13 months.
Production increased for the sixth consecutive month and the November reading was the strongest since March 2015.
US Manufacturing Orders: October 2016
As well, demand for long-lasting manufactured goods rose in October at the fastest pace in a year.
Orders for durable goods rose 4.8 per cent to a seasonally adjusted US$239.4 billion from a month earlier, the Commerce Department said Wednesday.
October’s jump was driven by a near doubling in orders for civilian aircraft, a highly volatile segment,
but demand for most other categories increased as well. When excluding orders tied to transportation, demand increased 1 per cent.
September’s overall orders were revised to a 0.4% gain from a previously estimated decline. As a result, orders have increased for four straight months, but are still down slightly through the first ten months of this year, compared with the same period in 2015.
US Manufacturing Orders: October 2016
The category that tracks business investment plans was up a slight 0.4 per cent, erasing only a small part of a 1.4 per cent plunge in September. Business investment spending has been a drag on the economy this year, reflecting in part big cutbacks in the energy sector.
The economy, as measured by the gross domestic product, grew at a 2.9 per cent rate in the third quarter, a significant improvement after growth averaged just 1.1 per cent in the first half of the year.
In October, orders for machinery edged up a slight 0.2 per cent, while demand for primary metals such as steel fell 0.1 per cent. Orders for computers rose 6.8 per cent.
Meanwhile, September’s slight decline was revised to up 0.4 per cent.
NEAR-TERM EXPECTATIONS
The figures signal a gradual turn in investment spending that has suffered from contraction in the energy sector and weak export demand. While a recent surge in the dollar may become a headwind for equipment makers, prospects of more infrastructure development improve the outlook for capital outlays in the coming year.
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We expect a modest positive trend for business investment as the negative drag from the energy sector fades. The underlying domestic demand picture looks quite healthy. We’ll wait to see whether fiscal policy can be supportive next year.”
– David Sloan, senior economist at 4CAST-RGE in New York
The jump in total bookings in October was the biggest in a year and included more orders for fabricated metals, machinery, computers and electrical equipment.
US DOLLAR RESPONDS UPWARD
Versus the Japanese yen, the US dollar traded sideways in Asia and briefly edged down to 110.86 ahead of European open before surging to a 7-1/2 month peak 112.98 Thursday morning, due to the release of robust US data and other slew of upbeat US data. However the price eased near New York close.
The single currency briefly edged up to 1.0644 at European open before retreating to 1.0600 in European morning. Euro met renewed selling at 1.0637 and tumbled to a fresh 11-1/2 trough at 1.0526 Thursday morning.
The British pound remained under pressure in Asia and weakened to 1.2368 in European morning.
OTHER INDICATORS POINT TO IMPROVEMENT
Wednesday’s report entirely represents activity that occurred before the presidential election. Like recent durable-goods orders, other data points to signs of improvement. The Institute for Supply Management’s manufacturing index rose for the fourth time in five months in October, but that index remains slightly down from a year earlier.
Wednesday’s report showed an important proxy for business investment, nondefense capital goods exccluding aircraft, rose 0.4 per cent last month, but it is down 4 per cent through October, compared with the first ten months of last year.