US Manufacturing Sentiment Strengthened
BNP Paribas | Mar 03, 2013 05:56AM ET
The manufacturing sentiment keeps on strengthening in the US, as showed by another increase in the ISM index in February, confirming that the global manufacturing cycle turned for good. This underlying strength is the reason of our optimism, despite the fiscal fight currently keeping Washington busy: the US economy will survive the sequester
The manufacturing sentiment keeps on strengthening in the US, as showed by another increase in the ISM manufacturing index. In February, it stood at 54.2, up from 53.1 in January and a cyclical low of 49.9 in November.
The subcomponents highlight a strong increase in production, with the index up to 57.6 (53.6 in January), and new orders (57.8 after 53.3 and 49.7). Exports orders (a non-component index) are of particular interest, with a strong reading of 53.5 in February, their highest level since May last year.
This confirms our view that the global manufacturing cycle turned, benefiting large manufacturers like the US, but also Germany and Japan.
Not everything is good news in today’s report. After a strong rebound in January, the employment component lost some ground. Its reading, which was 51.9 in December and 54.0 in January, was “limited” to 52.6 in February. However, this confirms our view that at the end of last year, in the run up to the Fiscal Cliff, the business sector adopted a wait-and-see attitude that led to below-par job creations. The strong rebound in January and the subsequent stabilisation at a comfortable level (its average since the early 1990’s is 48.4) are supporting our view of the underlying strength of the US economy.
This underlying strength is the reason of our optimism, despite the fiscal fight currently keeping Washington busy. For sure, fiscal austerity from the federal government is to limit growth this year and next. But the pressure at the state and local levels is diminishing, while the overall fiscal multiplier is definitely smaller than over the last few years as the private sector is beginning to get better. This is why we expect the US economy to weather relatively well the sequester.
BY Alexandra ESTIOT
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