HomeStrong Manufacturing Sector Leads America Out of Recession

Strong Manufacturing Sector Leads America Out of Recession

This week is the Non-Farm Payrolls (NFP) week and thus the focus is on the United States economy and how it performed in the last month of the quarter. The momentum builds up one day earlier as the ISM Manufacturing PMI data for March is due. 

The market expects the manufacturing sector to keep expanding. The forecast is that the release will show a sector growing at 61 when compared to the previous 60.8 level. For the PMI data, the 50 level is the so-called line in the sand – anything above 50 shows a sector that expands, while a print below 50 reflects a contraction of the manufacturing sector.

Overheating is an issue as well. The 60 level is viewed as signaling a sector that overheats, as 55 is a more desirable level. However, when coming out of an economic recession, like the pandemic-caused one, prints above 60 are normal.

The Fastest Growth for the Manufacturing Sector in Years

Developed economies are characterized by a strong services sector – one that has the biggest share of the GDP. The COVID-19 pandemic affected the services sectors around the world, so the attention turned to the manufacturing sector.

Last week, a survey from IHS Markit revealed that goods producers grew at the fastest pace in over six years. This is important because it compares to levels prior to the pandemic. Moreover, the forecast is that American capital goods will see a rise in sales by 5% or more in 2021.

As the American economy reopens, the market participants anticipate the movement in the dollar. At the end of last year, all investment houses bet on a lower dollar on the basis of a reflation trade.

Everyone thought that an accommodative Fed would push investors away from the dollar, but that did not happen. In fact, investors were willing to buy the dollar on the back of a stronger economic performance in America and the success of its vaccination campaign.

This week, the ISM Manufacturing data comes out one day before the NFP, and investors will scrutinize the employment in the sector. The chances are that the data will surprise positively, as the manufacturing sector leads the economy out of the recession. As such, the dollar should remain bid, especially because the day the NFP is released is a holiday.

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