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US Manufacturing PMI Points to Weakening Business Conditions

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US reports weak industrial sector growth in June

June’s final reading for the US Manufacturing PMI (purchasing managers’ index) pointed to weakening business conditions in the US. US industrial sector firms like Caterpillar (CAT) and United Technologies (UTX) fell 1.03% and 0.10%, respectively, on July 1.

The Industrial Select Sector SPDR Fund (XLI) tracks the industrial sector in the US (SPY). It rose 0.50% on July 1. Boeing (BA)—an industrial sector company—rose 1.45%. The SPDR Dow Jones Industrial Average ETF Trust (DIA) is another industrial sector gauging fund in the US. It rose 0.90%. XLI has yielded -3.98% YTD (year-to-date), while DIA stands at -0.27% YTD.

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June PMI final report

The key points from the US June PMI final report include:

  • The June data points to the weakest improvement in business conditions since October 2013.
  • Output growth slowed as the cost of inputs rose to the highest level since November last year.
  • The strengthening dollar continues to weigh down manufacturing export growth in the US.
  • New business continued to expand at a faster pace, despite falling export sales.

On July 1, Markit Economics reported the final reading for the June US Manufacturing PMI at 53.6 index points. This was slightly above the flash reading of 53.4 index points reported on June 23. It was down from 54 in May. June’s reading is the lowest in over a year. However, the index still managed an above-neutral—or 50—level, but it’s below the post-recovery average of 54.3.

Why is the US industrial sector lagging?

The industrial sector slowdown in the US can be attributed to two factors:

  1. The US economy’s current business cycle tends to favor the technology and healthcare sectors. Read Business Cycle Indicators Change as US Economy Shifts to learn more.
  2. The dollar’s appreciation is hurting the export competitiveness of industrial goods manufactured in the US. For more information, read US Industrial Sector Hit Hard by Currency Wars.

Next, we’ll look at some industrial reports from the Eurozone.

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