US manufacturing benefiting from a strong economy, tech investment, tariffs and energy security
The desk maintains a positive outlook on the US manufacturing sector, which is benefiting from a strong economic backdrop, bolstered by tech investments, energy security, and tariffs. Per the full note , the October ISM manufacturing index has risen to 55.5, surpassing expectations, indicating robust sector growth. The firm's assessment finds particular strength in high value-added manufacturing segments that outperform traditional sectors, reinforcing bullish sentiment in the market. With this backdrop, the ongoing dynamics in US manufacturing and their positive implications for the USD will be crucial for traders to monitor.
What the desk is arguing
The desk highlights the strength of the US manufacturing sector, powered by a resilient economy and substantial technological investments. Per the full note , the ISM manufacturing index indicates a strong expansion, with a notable production index of 59.0. Such figures signal that the sector is not only healthy but poised for continued growth, particularly in tech and advanced manufacturing.
In addition to the ISM manufacturing index, employment in this sector remains positive, albeit with minor fluctuations, which suggests sustained contributions to overall employment metrics. The significant reading of 75.2 on prices paid points towards potential inflationary pressures, which the Federal Reserve may need to monitor closely going forward.
Where it sits in our coverage
The desk's stance aligns with jpmorgan, targeting 1.10 for the USD against the EUR by March 2026. Conversely, bofa presents a more cautious view, setting its target at 1.04 for the same tenor. Given these perspectives, the desk's positioning aligns with an optimistic narrative around the USD's strength.
How other firms see it
Among aligned firms, jpmorgan exhibits confidence in the USD's ability to maintain strength against the backdrop of manufacturing growth. In contrast, bofa remains skeptical, cautioning against the volatility that could arise from external economic pressures. Traders should also watch USD/JPY, as movements there could reflect broader sentiments around the Fed's policy responses.
What the calendar says
With no high-impact events on the calendar in the next 30 days, market participants will need to assess manufacturing data and underlying economic indicators closely for signals that might influence the USD's trajectory and, by extension, affect trading positions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US manufacturing shows robust growth, as indicated by ISM manufacturing index hitting 55.5.
- 02The tech sector drives performance, significantly outperforming traditional labour-intensive sectors.
- 03Price pressures persist, with the prices paid index at 75.2, indicating potential inflation concerns.
- 04Sector dynamics reinforce a positive outlook for the USD in the near to medium term.
Market implications
Traders should closely monitor levels around the ISM manufacturing index of 55.5 for continued bullish momentum. Additionally, watch the interplay between tech sector performance and currency movements, as strengthening manufacturing could support USD appreciation in the broader market.
Risks to this view
Should economic conditions shift rapidly or if unexpected policy changes arise from the Federal Reserve, this could create headwinds for the manufacturing sector and undermine the current bullish stance on the USD. Elevated inflation readings may also prompt a more aggressive monetary response that could impact growth forecasts.
Older quick take Quick take Published 15:38 United States US manufacturing benefiting from a strong economy, tech investment, tariffs and energy security The manufacturing sector continues to power ahead, boosted by a strong US economy. Other factors are supportive. There is a clear split in performance between fast-growing tech, pharma and transportation sectors versus more labour-intensive, commoditised sectors.
Construction activity suggests interest-rate-sensitive sectors are struggling US manufacturing continues to be strong, led by the technology sector ISM manufacturing production hits a five-year high The October US ISM manufacturing index rose to 55.5 from 54.5 in September, where the market had expected it to remain. The production index rose to 59.0 from 56.7, indicating very robust activity, while healthy readings for new orders (55.5) and the backlog of orders (54.6) indicate that the outlook for the sector remains good – 50 is the break-even level and the further the index above 50, the greater the pace of expansion. Employment slipped marginally to 52.4 from 52.7, but it means that the sector should continue contributing positively to Friday's payrolls figure.
Prices paid remain hot though, running at 75.2, in line with their six-month average. ISM manufacturing production versus official industrial output growth Source: Macrobond, ING "> Source: Macrobond, ING Tariffs and US energy security have boosted the attractiveness of manufacturing in the US. But so too has US economic growth, which continues to outperform other key markets.
High value-added or advanced manufacturing, within which we group tech, electronics, transport and power-related sectors, has significantly outperformed other sectors. We expect this story to continue. As more countries increase military spending, US defence companies may benefit from strengthening order books.
Traditional, labour-intensive, commoditised manufacturing sectors will continue to shrink under pressure from foreign competitors. Here, tariffs are not enough to provide the competitiveness boost needed to offset the high cost of producing in the US. These US producers are also often adversely affected in foreign markets by retaliatory tariffs.
Construction contraction suggests pain in interest rate sensitive sectors The story for the construction sector is far less rosy. Construction spending plunged 1.9% month-on-month in September, but this follows a 2% jump in August (initially reported as a 0.9% gain). There have been huge swings in residential construction recently (+3.6% MoM in August, followed by a 5.5% drop in September).
As the chart below shows, the trend is clearly downwards for residential spending given the lack of affordability in a higher-mortgage-rate environment. Residential and non-residential construction spending ($bn) Source: Macrobond, ING "> Source: Macrobond, ING For non-residential construction, the growth is heavily skewed towards data centres, with construction spending up 8.6%MoM/90.3%YoY! All other non-residential construction outside of data centres and electric power is flat lining.
This suggests that interest-rate-sensitive sectors are starting to struggle, but for tech and AI, where the appetite to spend appears insatiable, the pipeline remains strong. US Technology Manufacturing Data centres Construction Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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