The US PMI composite output index rose significantly to 56.6 in December, compared to 54.9 in November, its highest level in 33 months. The Services PMI Business Activity Index also jumped to 58.5, also the highest level in 38 months. However, the industrial output index fell to 46.0, its lowest level in 55 months, while the manufacturing PMI fell to 48.3, its lowest level in three months.
PMI survey data indicates that economic growth accelerated in December, with output rising at the fastest pace in 33 months. Corporate expectations for output in the coming year also increased to the highest level in two and a half years, reflecting growing optimism about business conditions under the next administration. Employment rose slightly for the first time in five months as companies expanded their workforce in response to brighter expectations.
Despite these positive indicators, growth remained heavily concentrated in the services sector, while the manufacturing sector experienced a sharp decline. The goods production sector also reported a slight downgrade in the outlook, reflecting concerns about the impact of tariffs and inflation. Although the cost of raw materials rose sharply in the manufacturing sector, slower cost growth in the services sector helped ease inflationary pressures overall.
Overall, the global PMI composite output index rose to 56.6 in December, indicating the fastest expansion in business activity since March 2022. The index has recorded continuous growth since February 2023, with particularly strong growth recorded during the second half of 2024. However, growth was uneven, with the services sector seeing a marked increase in activity, while the manufacturing sector faced a significant decline in production.
Improvement in services and challenges in US flash manufacturing PMI and employment
If the months of the pandemic are excluded, the latest expansion in the services sector is the strongest since March 2015, while the manufacturing decline is the sharpest since the global financial crisis in August 2009. According to testimonies from respondents, this improvement is attributed to expectations of friendlier business management under Trump, especially in terms of more flexible regulation and increased protections.
However, some firms, especially in the manufacturing sector, have expressed concern about a weak demand environment and the potential impact of tariffs on inflation.
In terms of employment, improvements in expectations helped drive a return to employment, with we seeing a slight rise in hiring in December, for the first time in five months. This reflects a second consecutive monthly increase in manufacturing jobs, and the first increase in service sector employment since July. However, the increase in both sectors was modest, reflecting continued caution in salary numbers, as many companies sought to maintain low costs, while others reported difficulty finding or replacing employees.
As for prices, inflationary pressures slowed further at the headline level in December, despite higher input costs in the manufacturing sector. Average prices of goods and services rose slightly, increasing at the slowest rate since prices began to rise in June 2020. The latest easing has pushed inflation below the pre-pandemic average in the long run, with a particularly low inflation rate emerging in the services economy, where prices rose slightly and at the slowest rate since May 2020. In contrast, manufacturing selling prices rose at an unchanged rate from November’s pace, slightly above the pre-pandemic average in the long run.
How to trade using US flash manufacturing PMI I data?
Trading around US PMI reports could be a strategic move for Forex and commodities traders. Here are some tips on how to handle trading based on PMI data:
- Understand the PMI report
– Components: Learn about the key components of the PMI report, such as new orders, production, hiring, supplier delivery, and inventories.
– Historical context: Learn about the historical performance of the PMI and how it has affected the market in the past.
- Monitor PMI release dates
– PMI reports are released monthly and can create volatility. Make sure you know the release schedule and plan your trades around these dates.
- Market Outlook Analysis
– Forecast: Check market consensus or forecast to read PMI. An actual release compared to these forecasts can trigger market movements.
– Surprises: Be aware that the market is not only reacting to the absolute value of the PMI, but also how it compares to expectations.
- Prepare for fluctuations
– Pre-release situation: Some traders may position themselves ahead of the PMI release based on their expectations. Be careful, as this can increase the risk.
– Volatility after release: After the release of the PMI, the market can experience significant volatility. Be prepared for quick price movements and maintain a plan to manage your trades.
- Use technical and fundamental analysis
– Technical Analysis: Combine PMI data with technical indicators to identify potential entry and exit points. Look for patterns, support and resistance levels, and trend signals.
- Risk Management
– Stop Loss Orders: Use stop-loss orders to protect against unexpected market movements.
– Position size: Adjust the size of your position according to your tolerance for potential risks and fluctuations around the index version.
