James Knightley, the Chief International Economist at ING, notes that this ISM manufacturing index has jumped more than expected in January, rising to 50.9 from 47.8 in December, leaving the index at its strongest level since July.
"The gains were led by a hefty ten-point rise in the production component to 54.3 - the highest since last April - and a 4.4 point increase in new orders to 52.0. This is a very positive and welcome development, but as the chart below shows, the ISM continues to lag behind many of the closely followed regional surveys - maybe there will be more upside in the months ahead..."
"It seems likely that the Phase One trade deal with China has generated a positive lift for the sector by giving some certainty that there will be no-more tariffs, at least in the near term. Businesses, therefore, appear more willing to put plans into action, generating the uplift in orders and output."
"Despite this positive news for what has been a rather beleagured sector through 2019, we have to be cognisant of the risks. At the very least, the latest developments surrounding the coronavirus outbreak is likely to pose challenges for the sector. We know that production in China is being impacted and this could have adverse implications for US supply chains in coming months while there are worries about what it might mean for global demand in general, which could make manufacturers more cautious. The more the virus spreads, the more likely it starts to impact consumer and business behaviour, which implies downside risks for activity. As such, while today's report is very good news, we are nervous that the risks to activity in general, remain skewed to the downside with manufacturing looking particularly vulnerable."
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