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Why Did the US Manufacturing Activity Improve Slightly?

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ISM manufacturing PMI stays below 50

According to the US PMI (purchasing managers’ index) data released on March 1, the US manufacturing sector contracted for the fifth consecutive month. The ISM (Institute for Supply Management) PMI rose to 49.5 in February. This is higher than the Market’s expectation of 48.5. It’s also higher than the reading of 48.2 in January. However, it’s still below 50. This shows that the sector is shrinking. The manufacturing PMI’s movement is close to 50—this is positive.

According to the ISM report, nine out of 18 manufacturing industries reported growth in February. This is better than eight manufacturing industries that reported growth in January. The employment reading improved from 45.9 in January to 48.5. However, it’s still below 50.

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Markit manufacturing Stays above 50

The Market’s final US manufacturing PMI for February was 51.3. This is below the reading of 52.4 in January. It’s also the second-lowest reading since October 2012. Generally, the PMI index is calculated based on five components—new orders, inventory levels, production, supplier deliveries, and the employment environment. According to the chief economist at Markit, Chris Williamson, production grew and the orderbook continued to fall—led by the decline in exports. Jobs are being added at much slower pace. The output prices fell at the highest rate in almost four years.

The US construction spending data measures the change in the overall amount spent on construction in a given month. This data also released on March 1. According to the data released by the U.S. Department of Commerce, the construction spending in January rose by 1.5% to a seasonally adjusted rate of $1.14 billion in January.

The better-than-expected PMI readings along with upbeat construction spending data caused the US dollar to surge on March 1. The upbeat data resulted in a positive rally in base metal prices. Base metal miners Rio Tinto (RIO), BHP Billiton (BHP), Alcoa (AA), and Freeport-McMoRan (FCX) gained on March 1 along with the Power-Shares DB Base Metals Fund (DBB) and the SPDR S&P Metals & Mining ETF (XME). In the next parts, we’ll discuss the price action of base metals on March 1 amid the PMI releases for China and the US.

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