Will a US Manufacturing Decline Impact Business Conditions?

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US manufacturing PMI in June

The June 2017 final manufacturing PMI (purchasing managers’ index) report indicates a weaker environment in US business conditions (VFINX)(IWM). It stood at 52 in June compared to 52.7 in May 2017. It didn’t meet the preliminary reading of 52.1. The manufacturing PMI has been declining gradually since February 2017.

Let’s look at some of the key factors in the manufacturing PMI.

  • Production volume rose at a weaker pace in June 2017 compared to May 2017.
  • Employment in the manufacturing sector also moved slower in June.
  • New order growth and output showed a softer improvement in June 2017.

The gradual decline in the manufacturing PMI suggests that manufacturing activity is improving at a weaker pace in the US economy (QQQ)(SPY). However, the US services PMI has been improving gradually since March 2017. In June 2017, the US services PMI improved to 54.2.

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Performance of various ETFs in June

The Industrial Select Sector SPDR ETF (XLI), which tracks the performance of the US industrial sector, rose 1.4% in June 2017. The SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500 Index, rose nearly 0.6% in June 2017.

The gradual fall in manufacturing activity also suggests that domestic demand is weakening. These trends suggest that investors aren’t too concerned about economic (VOO)(IVV)(QQQ) growth and particularly the manufacturing sector.

In the next part of this series, we’ll analyze the performance of France’s manufacturing PMI in June 2017.

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