After mixed PMIs from Europe overnight (German/Eurozone Services down, Manufacturing up), US Manufacturing PMI (soft survey) rose very modestly in its preliminary December print to 21-month highs, which is entirely decoupled from industrial production hard data declining. However, the 54.2 level disappointed relative to 54.5 expectations, with export sales close to stagnation, which contrasted with the modest growth seen on average in the second half of 2016.
Which do you believe? Soft Survey data... or hard real data...?
“US manufacturing is enjoying a strong end to 2016, showing further signs of pulling out of the soft-patch seen earlier in the year and putting the sector on the starting blocks ready for a further upturn as we move into 2017.
“The fourth quarter has seen the strongest PMI readings for one-and-a-half years, suggesting the goods-producing sector is growing at an annualised rate of 2-2.5%.
“A buoyant domestic market, reflecting a combination of rising consumer demand and inventory building, is helping offset export woes caused by the strong dollar.
“Companies are gearing up for further growth in coming months: employment is rising at the fastest rate for 18 months and purchasing activity has likewise been ramped up in preparation for higher production. Confidence among producers has clearly improved, setting the scene for a good start to 2017.
“The upturn is being accompanied by rising costs, linked mainly to global commodity prices lifting higher. The combination of solid growth and rising price pressures adds to the likelihood of further Fed action in 2017, with three more quarter point hikes anticipated next year by IHS Markit.”