January ISM Manufacturing PMI Misses Expectations, USD Remains Strong

US manufacturing activity in January slowed compared to the previous month as the ISM Manufacturing PMI printed at 58.7 versus a forecast of 60.0. December’s print at 60.7 versus a forecast of 56.6, marked a high for the year despite a resurgence in Covid cases lending evidence to the suggestion that manufacturing has learned to cope with Covid. January’s miss may threaten that view.

ISM Manufacturing PMI, Yearly, January PMI, ISM, Bar Chart, Bloomberg

Manufacturing PMI serves as an important proxy for US GDP data, giving markets a closer and more timely look at an important component of the US economy. PMI prints above 50 denote an expansion and below 50 denote a contraction.

The ISM Manufacturing PMI fell into contractionary territory in March and bottomed in April. It remained contractionary in May as reopenings began and before crossing into expansionary territory in June, where it has since remained. January’s print at 58.7 marks a decline in activity since December but remains at the higher end of the pandemic range for the print.

While manufacturing continues to fare well despite rising Covid cases, the aggregate US economy continues to struggle. Durable Goods orders for December printed at their lowest level since April and consumer sentiment remained weak in January. January’s Services ISM prints on Wednesday and will give markets a closer look at the most important component of the US economy.

On the economic policy side, January’s FOMC meeting saw little change in the Fed’s stance. While the Biden administration has announced details surrounding a $1.9 trillion fiscal stimulus package, bipartisan cooperation on further economic relief looks less and less likely. GOP members have recently proposed a much smaller $618 billion relief plan, opening the door to prolonged debate and negotiation. Although vaccine rollouts offer a light at the end of the tunnel, logistical hurdles and challenges still need to be met. In the meantime, the virus has continued to spread.

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