US Manufacturing and Services PMI Surprise Ahead of the Weekend

This week started with a surprising jump in the US Empire State manufacturing index, which increased from -24.6 points to 10.8 points, indicating that the manufacturing sector might come out of recession finally. That improved the sentiment for the USD, with the idea that the FED might continue to raise interest rates.

But, the economic data during the week showed a deterioration in the US, with the Philly FED manufacturing index falling further into negative territory, declining from -23.2 points to -31.3 points. But on Friday the manufacturing and services PMI reports showed a decent bounce, showing that the manufacturing sector has left the recession behind. Below are the details of the reports:

The jump in both US manufacturing and services PMI released by S&P sent the USD jumping higher. This was particularly evident in the USD/JPY which saw a 100 pip jump, while EUR/USD and GBP/USD increased by around 50 pips. The report’s results were unexpectedly strong, with high figures for new orders and price pressures, which beat most expectations. However, some doubts arose after the initial strong numbers, and the US dollar’s gains were not sustained.

“The latest survey adds to signs that business activity has regained growth momentum after contracting over the seven months to January. The latest reading is indicative of GDP growing at an annualized rate of just over 2%.

“Growth is also reassuringly broad-based, led by services thanks to a post-pandemic shift in spending away from goods, though goods producers are also reporting signs of demand picking up again.

“Jobs growth has accelerated alongside the resurgence of demand, aided by reports of vacancies being more easily filled, reflecting improved supply of candidates and higher wages.

“However, the upturn in demand has also been accompanied by a rekindling of price pressures. Average prices charged for goods and services rose in April at the sharpest rate since September of last year, the rate of inflation having now accelerated for three successive months. This increase helps explain why core inflation has proven stubbornly elevated at 5.6% and points to a possible upturn – or at least some stickiness – in consumer price inflation.”

That doesn’t sound like an economy on the brink of a recession. But, traders were not sure and the USD ended the week back down.