The IHS Markit manufacturing index hit a 3-month low this month, falling from 52.4 to 51.7. Meanwhile, the services PMI rose from 52.8 to 53.2, the highest level since March 2019. Any figure above 50 indicates growth, while below 50 indicates contraction.
Key Takeaways
- The US manufacturing industry continues to show signs of weakness, nearing contraction in the latest PMI.
- Services rose to 53.2 in January, the highest point since March.
- UK and Euro Area PMIs saw improvement, but remain below 50 points.
The US manufacturing industry has been severely impacted by the 18-month trade war waged between the US and China. Punitive tariffs have made it expensive to import manufacturing materials from China, traditionally the main trading partner with the US. While both nations have entered a preliminary agreement, tariffs are still in place, and US president Donald Trump has threatened further tariffs against European countries, potentially widening the trade conflict. The trade war has resulted in limited growth, reduced hiring, and layoffs in the manufacturing industry.
While recent regional reports such as those from the Philadelphia and New York Federal Reserves show surprisingly strong activity, overall the industry remains in a weakened state. The PMI report shows that overall demand softened among domestic and foreign manufacturing clients alike in January.
Manufacturing PMI in complete disagreement with the market right now.
The bulls trust the market as a leading economic indicator over the "sentiment" of purchase managers.
The bears think the market is in the "la-la land" as the economy continues to slow.
What do you think? pic.twitter.com/0WDOeI47PN
— Tiho Brkan (@TihoBrkan) January 24, 2020
The UK composite PMI rebounded into growth territory from 49.3 to 52.4, and the Euro Area manufacturing PMI grew 1.5 points from 47.8, continuing to contract. Markit economist Sian Jones released a statement saying “Manufacturing is not out of the woods yet, with goods producers seeing only modest gains in output and new orders.” On the other hand, conditions in the services industry improved. Sales saw the third consecutive month of growth in January.
Market Reaction
Gold prices have risen following the release of the mixed financial data. Spot gold last traded at $1,573.66/oz, up 0.58% with a high of $1,573.68/oz and a low of $1,557.00/oz. The report gave gold prices a boost after floundering earlier in due to increased risk-on appetite in the financial markets.
