3 Numbers: Third positive update likely for Fed manufacturing index
- NY Fed’s regional manufacturing index projected to stay positive in August
- US Housing Market Index in August expected to tick higher
- A bearish mood hangs over GBPUSD, with no relief in sight
US: NY Fed Manufacturing Index (1230 GMT) The US manufacturing sector is flirting with another round of recovery. We’ve been here before, of course, only to watch the revival fizzle. Is it different this time? Today’s early look at August activity in the sector may provide a clue.
Meanwhile, July’s output improved slightly, according to the US Manufacturing PMI. The index ticked up to 51.9 last month, touching an eight-month high. “The stronger manufacturing PMI survey data for July fuel hopes that the sector will act as less of a drag on the economy in the third quarter after a disappointing first half of the year,” said Markit’s chief economist in a press release earlier this month.
Today’s report from the New York Fed will provide a preliminary test of the August profile by way of regional activity in the bank’s region. It’s encouraging that this index has returned to positive territory in June and July. Will today’s update mark three in a row?
Yes, according to the consensus forecast via Econoday.com. Economists are looking a modest rise to 2.5 in August from last month’s 0.55 (red line in chart below). If the prediction is right, the news will inspire fresh chatter about the potential for manufacturing’s rebound … again.
Positive momentum continues to prevail, however, although the recovery remains modest at best. Nonetheless, economists are still expecting that demand will push the industry to build more houses in the months ahead, albeit at a gradually rising pace. “Demand for new single-family homes is slowly but steadily improving,” a PNC Bank economist noted last month.
Sentiment in the home-building industry aligns with that outlook, based on the Housing Market Index (HMI). “For the past six months, builder confidence has remained in a relatively narrow positive range that is consistent with the ongoing gradual housing recovery that is underway,” said the chairman of the National Association of Home Builders, the group that publishes HMI, last month.
The HMI dipped to 59 in July, which is a middling value relative to readings for the year so far. A print above 50 shows that a majority of survey respondents have positive views on the industry’s near-term outlook and so the latest reading still points to a bullish bias.
Today’s update for August is projected to build on that bias with a slight gain. Econoday.com’s consensus forecast calls for a rise to 60. If so, the index will match June’s reading for the highest level so far this year.
The driving force behind the trend: expectations that the UK economy is stumbling, and probably heading into a Brexit-triggered recession, according to economic forecasts.
The crowd will be reading this week’s lineup of economic releases for insight on how or if to adjust the current outlook for the UK economy. The monthly inflation report is due tomorrow, followed by the first post-Brexit reports (July) for the labour market (Wednesday) and retail sales (Thursday).
Meanwhile, bearish momentum for sterling rolls on vs. the US dollar. GBPUSD last week slipped under 1.30 for the first time in three decades, closing on Friday at just above 1.29. The technical profile suggests that we’ll see even lower levels in the weeks and months ahead. GBPUSD’s 50-day moving average has collapsed lately, falling well below its 100- and 200-day counterparts, which points to a strong bearish bias for the foreseeable future.
Short of a surprising batch of strong economic numbers, which is unlikely, the pound looks set to suffer the effects of gravity as the country struggles with the macro and political blowback in the wake of the Brexit vote.