The US manufacturing sector grew at a moderately faster pace in July, according to today’s initial estimate of Markit Economics purchasing managers index (PMI). "The U.S. manufacturing sector picked up momentum again in July, with output, order books and employment all growing,” says Markit’s chief economist, Chris Williamson, in a press release (pdf). “The goods-producing sector acts as a bellwether of the wider economy, and the upturn in July therefore bodes well for the pace of GDP growth to have picked up again in the third quarter after a likely easing in the second quarter."
It’s interesting to note too that for the second time in the past year, the Markit PMI data provided a more reliable measure of the trend vs. the ISM Manufacturing Index, a competing benchmark. Last November, the ISM data dipped slightly below the neutral 50 mark, suggesting that the manufacturing sector was poised to contract in the months ahead. But Markit’s PMI reading remained well above 50 and actually increased in November 2012 vs. the previous month. As subsequent updates for both the PMI and ISM numbers revealed, the manufacturing sector did in fact continue to grow.
Fast forward to ISM’s May 2013 update, which indicated another bout of contraction in manufacturing (the ISM Manufacturing Index slipped to 49 for that month). Once again, the PMI numbers have remained well above 50 (all year, in fact), and today’s increase to 53.2 for July is the highest since March. Is this a sign that ISM’s trip below 50 in May was another false signal? Today’s PMI update suggests as much, although keep in mind that this morning’s release is the so-called flash estimate; the final data for July, which may or may not be revised, will be released on August 1, on the same day that the July ISM Manufacturing report is scheduled for publication.
Meantime, taking today's PMI number at face value suggests that the cyclically sensitive manufacturing sector continues to expand at a modest pace. The latest ISM report doesn’t disagree, or at least its 50.9 reading for June suggests. In fact, reviewing a broad set of economic indicators falls in line with today’s PMI report, as per last week’s US Economic Profile update. A markets-based review of the macro trend also looks encouraging, as I noted earlier in today's Macro-Markets Risk Index report.
Overall, it’s fair to say that the US economy is still trending positive with minimal signs of distress in terms of evaluating business cycle risk. Yes, the expansion remains moderate at best, but a broad review of the numbers currently available leaves little doubt that the macro bias is still convincingly on the side of growth.