By Orbex
Markit will be releasing the forward-looking data this week, in the form of the flash manufacturing PMI for the United States. The preliminary results follow the business activity in the manufacturing sector for the month of July.
The data comes during a crucial week where the US second-quarter advance GDP figures will also be published. There is no doubt that global economic growth has slowed. This is evident not just from US GDP data but also among various other developed economies.
Economists forecast that Markit’s flash manufacturing PMI for July will see manufacturing activity rising from 50.6 in June to 50.9 in July. This marks a modest pick up in the manufacturing activity for the world’s largest economy.
Manufacturing activity in the US as measured by Markit has been in a steady decline since February this year. After manufacturing activity peaked to 54.9 in January, activity fell sharply in the months thereafter.
The slowdown reflects the shift in the global economy as well. Various institutions have already cautioned that growth is likely to slow in the years ahead. This comes after the US saw one of the longest expansionary stretches in history.
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However, the forecasts for the flash manufacturing PMI is somewhat optimistic.
Last week, we got to see some of the regional manufacturing index data. The figures were published by the respective regional Federal Reserve banks. While the overall figures picked up, the underlying data indicates that growth remains sluggish. Of course, we cannot expect growth to rebound within a month.
The NY Fed’s, Empire State Manufacturing Index saw an increase from -8.6 in June to 4.3 in July. However, looking under the hood, data showed that unfilled orders and inventories moved lower.
The new orders index did not see any major gains, suggesting that demand continued to remain sluggish. The employment index, which is a measure of the demand, also remained in the negative.
In fact, the employment index fell to the lowest level in nearly three years. The general business conditions index was one of the main drivers for the index to rebound.
Then, the Philly Fed manufacturing index was released by the Philadelphia Federal Reserve. Data showed that manufacturing activity rose to 21.8 in July, up from 0.3 in June. In this report, the data was somewhat different.
New orders, shipments, and general activity picked up. Similar to the NY Fed’s report, the Philly Fed manufacturing index noted that firms were optimistic about an uptick in the economy.
The regional manufacturing data indicated that while growth is returning, it remains uneven. Taking the two regional reports, it is clear that the manufacturing pick-up is not strongly entrenched.
Thus, investors will most likely wait and watch for the trends to be established in the manufacturing activity.
Up until now, the manufacturing activity overall remains weak. However, the ISM’s manufacturing PMI for June saw a modest decline to 51.7 from 52.1 in May. This was a slower pace of increase.
But it was slightly better compared to the median estimates.
There are a number of global factors at play that have driven demand lower. Primarily, the US trade war policy against a number of economies stands out. This has led to quite a lot of uncertainty in the manufacturing sector.
Until there is some clarity, we do not expect to see a general improvement in the manufacturing side of the business. Given that manufacturing adds quite a bit to the national GDP, it could also drive the growth lower.
This is evident from the advance GDP report that will come out this week. Growth is expected to slow to a pace of 1.8% in the second quarter. It would mark one of the slowest growth patches after a strong run.
By Orbex