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US Manufacturing PMI Points to Weakening Business Conditions

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Aug. 18 2020, Updated 5:18 a.m. ET

US reports weak industrial sector growth in August

August’s US Manufacturing PMI flash reading pointed to weakening business conditions in the US. The Industrial Select Sector SPDR Fund (XLI), which tracks the industrial sector in the US (SPY), fell 3.67% on August 24.

US industrial sector firms such as AO Smith (AOS), TRI Pointe (TPH), and the Manitowoc Company (MTW) fell 6.76%, 6.55%, and 6.38%, respectively, on that day. XLI is down 12.39% YTD (year-to-date), while AOS, TPH, and MTW have yielded 8%, -9.18%, and -30.95% YTD, respectively.

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August PMI Flash report

The key points from the US August PMI Flash report include:

  • August data points to the weakest improvement in business conditions since October 2013.
  • Output growth recorded a marked slowdown from the three-month high recorded in July.
  • New orders and payroll numbers all expanded at a slower pace in August.
  • The strengthening dollar and the global growth slowdown continue to weigh down manufacturing growth in the US.

On August 1, Markit Economics reported the preliminary reading for the August US Manufacturing PMI at 52.9 index points, down from the 53.8 recorded in July. August’s reading is the lowest in 22 months. However, the index still managed an above-neutral (or 50) level, but it is 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:

  • The global economic slowdown is affecting new orders at the industrial level in the US. The US’s major trading partners, Eurozone and China, are experiencing a muted pace of economic activity currently. “August’s survey highlights a lack of growth momentum and continued weak price pressures across the U.S. manufacturing sector, which adds some fuel to the dovish argument as policymakers weigh up tightening policy in September,” commented Tim Moore, senior economist at Markit.
  • The dollar’s appreciation is hurting export competitiveness of industrial goods manufactured in the US. For more information, please read US Industrial Sector Hit Hard by Currency Wars.

Next, let’s look at some industrial reports from the Eurozone.

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