US reports improved industrial sector growth in July
The Industrial Select Sector SPDR Fund (XLI), which tracks the industrial sector in the United States (SPY), is down 0.17% over the past month (as of August 4, 2015). The ETF has lost 4.68% since the beginning of the year, as the appreciating US dollar (UUP) continues to weigh down the US industrial sector. Nonetheless, July’s US Manufacturing PMI (purchasing managers’ index) final reading indicated a rebound in US business conditions, offering some respite to investors betting on US industrial sector growth.
US industrial-sector firms Boeing (BA), Caterpillar (CAT), and United Technologies (UTX) fell 0.10%, 0.85%, and 0.39%, respectively, on August 4’s close. BA, CAT, and UTX have yielded +10.43%, -16.31%, and -13.89% year-to-date.
July PMI final report
The key points from the US July PMI final report include the following:
- July data points to a rebound in business conditions from June’s 20-month low.
- Production volumes saw the sharpest rise in three months.
- Output and new business grew though job creation was weak in July.
- The strengthening dollar continues to weigh down manufacturing growth in the United States.
On August 3, Markit Economics reported the final reading for the July US Manufacturing PMI at 53.8 index points, up from the 53.6 recorded in June. July’s reading is a rebound from June’s 20-month low. The index is comfortably above the neutral level (50.0) but it’s below the post-recovery average of 54.3.
Manufacturing is stuck in a lower gear in the United States
The dollar’s appreciation is hurting the export competitiveness of industrial goods manufactured in the United States. For more information, please read US Industrial Sector Hit Hard by Currency Wars.
“The PMI picked up in July, but the sector continues to endure one of the slowest growth phases seen over the past year and a half. Companies reported that the strong dollar once again hurt export competitiveness,” commented Chris Williamson, chief economist at Markit Economics. However, he continued, “Relief has also come in the form of lower commodity prices, and low oil prices in particular…. Survey data showed manufacturing growth being led once again by producers of consumer goods in July.”
While the strengthening dollar is hurting US exports, it’s benefiting Canadian exporters. We’ll discuss the Canadian Manufacturing PMI report next in this series.