U.S. ISM manufacturing index rises above expectations in August, outlook remains optimistic in medium-term

The U.S. ISM manufacturing index rose above consensus market expectations in August. The index was up by 2.5 points to 58.8 in August, as compared with the consensus expectations of 56.5, and July’s reading of 56.3. Most of the subcomponents rebounded in August, with inventories and employment leading the way, rising to 55.5 and 59.9, respectively.

Production rebounded a bit to 61, while new orders remained competitively stable at 60.3. The backlog of orders rebounded by 2.5 points to 57.5, matching a March cycle high. Given little movement in new orders and a sharp rise in inventories, the spread between the two was cut in half. However, at 4.8, it continues to be supportive of future growth, albeit slower, in the sector, stated TD Economics in a research report.

The biggest drop was seen in customers’ inventories that dropped 8 points to 41, bringing the index to the levels seen in 2011. Meanwhile, trade indicators fell, with exports dropping by additional 2 points in August, while imports reversed part of last month’s gain. However, both continued to be in the 55-point range, indicating decent growth in trade activity, stated TD Economics.

The prices paid subcomponent remained stable at 62, broadening the gap from year-ago levels to 9 points from 7 points earlier. Out of 18 industries, 14 recorded growth in August, with Textile Mills, Petroleum & Coal Products, and Machinery registering the most solid growth on the month.

Today’s ISM manufacturing report affirms that the manufacturing sector of the U.S. continues to grow at a strong pace. The details of the report give additional comfort as almost all of the sub-indices, except customers’ inventories, continue to be in healthy territory. Meanwhile most industries saw a growth in August, while comments from the survey respondents continued to be widely positive.

According to TD Economics, the manufacturing sector is expected to experience some volatility given the impacts of Hurricane Harvey on Southeast Texas. The impacted area is a centre for a large concentration of the refining and chemical industry, with the pause in activity likely to be a drag on the sector, and on nondurable goods manufacturing as a whole.  As the mentioned industries return to full capacity, manufacturing activity is expected to see a boost in the following quarter. Meanwhile, reconstruction and clean-up efforts are expected to provide additional stimulus to manufacturing in subsequent quarter.

“Overall, we remain optimistic about manufacturing's prospects over the medium term, given improving global growth and a weaker U.S. dollar – with the greenback giving back more than its post-election gains”, added TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 70.2991. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest