The US global manufacturing PMI rose from 48.5 in October to 48.8 in November, suggesting a deterioration in working conditions within the goods production sector for the fifth consecutive month but with the rate of deterioration slowing to the slowest level since July.
Although production fell at a sharply increasing rate, all other PMI components rose. The rate of loss of new orders fell and hiring rose – albeit modestly – for the first time in four months. Data shows that growth in business activity is supported by increased demand, with new orders seeing their strongest rise since May 2022. Corporate expectations for output next year rose to their highest levels since May 2022, supported by expectations of lower interest rates and improved economic growth, as well as supportive policies from the new administration in 2025.
However, the employment rate continued to decline for the fourth consecutive month, while output price inflation slowed to its lowest level since June 2020, with a modest increase in prices for services. While the services sector recorded remarkable growth, the manufacturing sector continues to suffer from a slowdown, suggesting a divergence in the performance of the economy.
Despite rising new orders for services at a rate not recorded since April 2022, new orders placed in factories continued to decline for the fifth consecutive month, with the lowest decline recorded during this period, suggesting a possible slowdown in production in December.
Future Feelings
Looking ahead, optimism about output recovered next year after hitting a 23-month low in September. In November, optimism reached its highest level since May 2022, and the improvement was broad-based, but particularly noticeable in the manufacturing sector, where optimism hit a 31-month high, suggesting that economic expansion may become more balanced in the coming months.
Business outlook improves despite decline in employment and activity
The improved outlook reflects the fading political uncertainty that followed the U.S. presidential election, and respondents cited expectations of lower interest rates, lower inflation, and improved economic conditions. It was also noted that the new, more business-friendly management supports expectations, especially in terms of deregulation.
Despite the improvement in business confidence, companies cut hiring for the fourth consecutive month in November, with the highest level of job losses in three months. However, the sharp decline in service sector jobs was partially offset by an increase in manufacturing jobs.
which saw a rise for the first time in four months.
Meanwhile, average prices of goods and services rose slightly in November.
as inflation slowed to its lowest level since June 2020. This easing has led to inflation falling below the long-term pre-pandemic average, with inflation declining significantly in the services sector.
with fees recording a slight increase and at the slowest rate since May 2020. In contrast, manufacturing selling prices rose slightly.
Input cost inflation has also slowed, although it remains fairly high by historical standards.
especially in the services sector amid high wage pressures. However, the overall rate of input cost inflation was the lowest since June.
US PMI survey data for November showed a significant rise in business activity.
with the index coming in at 55.3, up from 54.1 in October, its highest level in 31 months. The index of business activity in the services sector also increased to 57.0, the highest level in 32 months.
At the same time, inventories fell at a low rate and supplier delivery times were extended to a 25-month maximum, which served as an additional boost to the headline PMI.
The impact of the US Spot Manufacturing PMI on the value of the currency
Here’s how a manufacturing PMI can affect a currency:
- 1. Market sentiment: A higher-than-expected PMI indicates that the manufacturing sector is expanding, which could boost investor confidence in the US economy. These positive sentiments can lead to increased demand for the US dollar as investors seek to invest in a stronger economy.
- 2. Interest rate expectations: Strong PMI data may prompt the Fed to consider tightening monetary policy, such as raising interest rates. High interest rates generally attract foreign capital, leading to a currency appreciation. Conversely, a weak PMI could lead to expectations of lower interest rates, which could lead to currency devaluation.
- 3. Economic Health Index: The PMI provides insight into overall economic health. A strong manufacturing sector often signals broader economic strength, which can positively impact the currency. A weak PMI indicates economic problems, which could weaken the currency.
- 4. Trade Balance Impact: The performance of the manufacturing sector can affect the trade balance. For example, if manufacturing is strong, it could increase exports, improve the trade balance and strengthen the currency. Conversely, weak manufacturing could lead to trade deficits, putting downward pressure on the currency.
- 5. Investor Behavior: Traders and investors closely monitor PMI reports for clues about future economic conditions. A better-than-expected PMI may lead to a higher market outlook for future economic performance, affecting the value of the currency as traders adjust their positions based on new information.
Overall, the manufacturing PMI is a crucial indicator that reflects the health of the manufacturing sector and can have a significant impact on the currency by influencing market sentiment, interest rate expectations, and economic perceptions.
