USD Resumes Uptrend as ISM Manufacturing Improves

The US economy was showing weakness earlier this year as the FED contiued to increase interest rates but in recent weeks we have seen improvement in certain sectors and some solid numbers for other sectors such as employment and consumer demand, which is represented by retail sales.

Europe and other developed countries continue to show increasing weakness as today’s Manufacturing PMI figures from the Eurozone showed, implying an economic recession soon. But in the US, the positive signs keep coming and today’s ISM manufacturing were another indicator in the right direction.

We’ve been expecting green shoots in the economic calendar from manufacturing for a while now, and they’re starting to pop up in the data. Manufacturing has seen an outright recession in the last year, but stocks have become incredibly lean, and demand has held up better than expected. There is a strong case to be made that manufacturing will be a source of strength for the US economy next year and that’s already helping the usd, which is continuing to grind higher today, afterclosing the second bullish monmth last week.

US September ISM Manufacturing Report

• September ISM manufacturing PMI 49.0 points vs 47.8 expected
• August ISM manufacturing PMI was 47.6 points
• Prices paid 43.8 points vs 48.6 expected. Last month was 48.4 points
• Employment 51.2 points vs 48.3 expected. Last month 48.5 points
• New orders 49.2 points vs 46.8 prior
• Inventories 45.8 points vs 44.0 prior
• Production 52.5 points vs 50.0 prior

Comments in the report:

• “In the evolving supply chain environment, customers are increasingly taking an active role in initiating new projects, looking for cost reduction opportunities and lead-time mitigation, with a growing emphasis on collaboration. Post-pandemic, customers have learned they need partners to navigate rough waters.” [Computer & Electronic Products]
• “We need to coordinate very closely with suppliers in order to yield a more cost-competitive offer. More back and forth is needed to reach a reasonable total price.” [Chemical Products]
• “Orders and production remain steady, and we are maintaining a healthy backlog. Continued inflation and wage adjustments continue to drive prices up, although we should get some relief from the markets stabilizing.” [Transportation Equipment]
• “Cost increases are now generally isolated to specific commodities rather than blanket increases due to ‘inflation.’ ” [Food, Beverage & Tobacco Products]
• “Markets remain soft. Our customers have about-right inventory levels, but they paid more due to pandemic cost increases. Everyone is holding off on increasing inventories, hoping they can buy at lower costs.” [Apparel, Leather & Allied Products]
• “Overall, things continue to be very steady: Sales and revenue are as expected, and the supply environment has stabilized greatly versus 2021-22. Some things to watch include the Panama Canal (drought), U.S.-China relations, and the impact the UAW (United Auto Workers) strike could have on suppliers of ours who support automotive production. But overall conditions feel stable.” [Miscellaneous Manufacturing]
• “Cement negotiations have changed, with cement mills no longer offering annual or guaranteed pricing. We now want to contract more as a commodity, leaning toward quarterly, with fluctuating prices yet to be determined.” [Nonmetallic Mineral Products]
• “A recession feels imminent. Money continues to be pushed into the bank markets, driving inflation rates really high. Most plants are buying less material or reducing consumption in the name of sustainability, as well as running at 80 percent of capacity. Prices of some products may increase for the upcoming winter weather.” [Petroleum & Coal Products]
• “Business conditions and market demand remain strong. We are projected to be at capacity in the next 12 months.” [Primary Metals]
• “New business development is coming onboard. However, many forecasts are set for the beginning of 2024. Hiring and retaining quality people is still a struggle.” [Textile Mills]

The bolded comment is an interesting one. The fall in prices paid is really hard to understand given oil prices but there might be something bigger at work.