Economy

Economic Data Roundup (02/06/2020)

2/6/20 8:00 AM

Gauges of business activity in America have improved recently. For example, the Institute for Supply Management's popular manufacturing index jumped in January from 47.2 to 50.9, the largest monthly gain in over a decade and the first expansionary (>50) reading since July. Under the hood there were solid gains in new orders, production, net trade, and employment last month, and comments from surveyed managers suggest overall confidence in business conditions has firmed. The rebound in the headline ISM manufacturing index was far from surprising since a month ago we explained how this particular metric appeared overly pessimistic relative to most other gauges of activity in the goods-producing sector that generally strengthened in Q4.

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De-escalating trade tensions have been the key factor behind the recent stabilization in the manufacturing arena, but activity is well off the highs and the industry is likely still sensitive to shocks. One such near-term risk for this sector is the new coronavirus that originated in China. The ultimate scale and severity of the outbreak remain to be determined but the uncertainty resulting from the unexpected headwind could easily weigh on business sentiment in the February survey, and going forward the negative spillovers will depend on how quickly the epidemic is contained. The coronavirus also has the potential to weigh on activity in the larger service sector, but no urgent concerns were expressed in the January surveys released this week, and save some rapidly worsening pandemic scenario the U.S. economy’s exposure should be limited. Altogether, incoming reports on business activity in America are likely to be noisy during the next few months, and the quicker the coronavirus contagion is brought under control the smaller the economic damage will be. Below are a few highlighted comments from surveyed managers across a variety of industries in January:

Non-Manufacturing

  • “Outlook remains favorable for growth in 2020. Pricing on goods and services [are] stable, with little to no pricing escalations expected for the remainder of the first quarter, except for seasonal- and trade/tariff-related impacts on food products.” (Accommodation & Food Services)
  • “Q1 sales are improving, which makes us more optimistic.” (Construction)
  • “The labor market continues to be a challenge, impacting capacity and pushing up costs. Despite this, overall business volume remains positive, with growth in key sectors for our business.” (Management of Companies & Support Services)

Manufacturing

  • “Business has picked up considerably. Many of our suppliers are working at or above full capacity. Tariffs are still a concern and are believed to be a factor in short supply and higher prices of electronic parts. Our profit margin has been somewhat negatively affected by high tariffs, particularly on electronic parts from China.” (Computer & Electronic Products)
  • “Our business is starting 2020 stronger than we finished 2019, as we saw a dramatic downturn in orders over the last four months of 2019. Orders are up to start the year, but slightly behind where they were one year ago.” (Fabricated Metal Products)
  • “Tariffs on injection molds will impact selection of mold builder for future jobs. We are more likely to choose domestic rather than offshore.” (Plastics & Rubber Products)

 


 

Sources: Econoday, ISM, IHS Markit, FRBSL

Post author: Charles Couch