US manufacturing remains robust, but jobs market stays subdued
At a Glance
The US manufacturing sector remains strong despite ongoing challenges in the jobs market, as demonstrated by the latest ISM manufacturing index reading of 54.6, which, while slightly below expectations, underscores solid growth in production. Per the full note , this is reinforced by substantial investment in technology-related capital expenditures, indicating a robust outlook for manufacturing. However, the subdued job creation and moderate wage pressures raise concerns about overall economic strength, particularly as the Fed weighs rate hikes later this month. Market participants should remain vigilant as the current pricing implies a 25bp hike in September is still on the table.
Key Takeaways
- 01US manufacturing remains resilient, offset by soft job creation.
- 02ISM manufacturing index at 54.6 indicates continued expansion.
- 03Elevated input costs may pose challenges to sustained growth.
- 04Potential Fed rate hike remains a key market focus.
Full Analysis
What the desk is arguing
The desk suggests that the recent ISM manufacturing data points to a resilient sector contributing positively to economic growth, aided by tech investments. Per the full note , the production index at 58.3 signals GDP growth near 3%, while employment metrics reflect ongoing job creation albeit at a slower pace.
The moderate December ISM reading, although softer than anticipated, does not detract from a general trend of expansion. Specifically, the new orders index decreased to 53.7, indicating potential headwinds ahead, while the prices paid component remains elevated at 71.1, suggesting persistent inflationary pressures that may influence Fed policy decisions.
Where it sits in our coverage
Our consensus target for the USD remains at 1.075, with a range from 1.04 to 1.12. Key firms contributing to this outlook include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's view aligns closely with jpmorgan, which anticipates a stronger dollar based on similar economic indicators, while diverging from bofa, which projects a more cautious approach reflected in its lower dollar target.
How other firms see it
Consensus among aligned firms like jpmorgan suggests confidence in USD strength as supported by manufacturing data. In contrast, bofa holds a bearish outlook due to concerns about job market stagnation affecting wider economic performance.
Watch USD/CAD as it senses the pulse of the dollar's strength amid these economic signals, as growth prospects and Fed actions interplay in shaping forex outcomes.
Market Implications
Traders should monitor the USD/CAD pair closely; a breach of key resistance at 1.08 could signal further strength for the dollar. Additionally, keep an eye on Fed communications ahead of the September meeting, as indications of tightening could boost USD positions.
From the original
Older quick take Quick take Published 15:39 United States US manufacturing remains robust, but jobs market stays subdued Another firm ISM manufacturing index boosts confidence in the durability of the recovery in the sector, fuelled by the ongoing surge in tech-related capital ex
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The desk argues that while the US service sector remains robust, as illustrated by the ISM services index, concerns about weak hiring persist, influencing market expectations for future Federal Reserve rate hikes. The report from ING indicates business activity remains elevated, with the ISM index reflecting a 2.5% GDP growth trajectory. However, employment metrics fell below neutral, highlighting a paradox of rising activity against a backdrop of hiring hesitance, a nuanced dynamic discussed in detail in the original commentary [source].