Manufacturing Making A Comeback

Slight Decline In Markit PMI

Flash Markit PMI fell slightly in September, but this was still a pretty good report. Diffusion indexes measure how business is doing versus the last period. With the economy recovering, the comparisons get tougher. This explains why many diffusion indexes were very high right after the recession ended. 

Composite PMI hit a 2 month low as the chart below shows. Services PMI fell from 55 to 54.6 which also was a 2 month low. The service sector still hasn’t fully rebounded from the COVID-19 crisis. We need to see rapid testing before the leisure and hospitality industry comes back.

(Click on image to enlarge)

On the positive side, the manufacturing PMI rose from 53.1 to 53.5 which is a 20 month high. It’s doing better than it was in 2019 which makes sense because that actually was a weak year for manufacturing. The economy was just coming out of a slowdown before the COVID-19 crisis hit. We can expect manufacturing to have a strong September based on this reading and the Empire Fed reading.

In addition to those good reports, the Richmond Fed index was up from 18 to 21 which beat estimates for 12. Finally, the Philly Fed index was more of a mixed bag as the headline diffusion index was down from 17.2 to 15, but the future expectations index was up from 38.8 to 56.6. 

That’s a pretty big improvement as the capex index was up 8 points to 31. Interestingly, the index was mostly driven higher by inflation. Prices paid index rose 20 points to 57.7 and the prices received index was up from 30.2 to 42.4.

In the comment section of the Markit report, the chief business economist stated, “US businesses reported a solid end to the third quarter, with demand growing at a steepening rate to fuel a further recovery of output and employment.” That's impressive because Markit has been more negative in recent months. 

It’s clear manufacturing is turning higher and services has the potential to break out to the upside if the economy can get back to normal. Obviously, there are more fears of COVID-19 now than 2 weeks ago, but many sticking with optimism because of the potential for better treatments and more testing.

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