U.S. manufacturing near two-year high; road ahead difficult

In this news, we discuss the U.S. manufacturing near two-year high; road ahead difficult.

WASHINGTON (Reuters) – Manufacturing activity in the United States accelerated more than expected in October, as new orders hit their highest level in nearly 17 years amid a shift in spending towards goods like vehicles power and food as the COVID-19 pandemic drags on.

Monday’s survey by the Institute for Supply Management (ISM) was the last major economic data before Tuesday’s hotly contested presidential election. But the manufacturing outlook is difficult.

As the coronavirus crisis has boosted demand for pandemic life-supplementing goods, a resurgence of new cases across the country could lead authorities to reimpose restrictions to slow the spread of respiratory disease as winter approaches. , which could affect the activity. Government money for businesses and workers affected by the pandemic, which boosted economic growth in the third quarter, has dried up.

“The manufacturing sector has rebounded strongly with fewer restrictions on economic activity and stimulus efforts, but the way forward will be more difficult as the economy continues to grapple with the pandemic,” said Gus Faucher, Chief Economist at PNC Financial in Pittsburgh, Pennsylvania.

The ISM said its index of domestic factory activity rose to 59.3 last month. It was the highest since November 2018 and followed a reading of 55.4 in September.

A reading above 50 indicates an expansion in the manufacturing sector, which accounts for 11.3% of the US economy. Economists polled by Reuters had forecast the index to reach 55.8 in October.

However, the jump in activity is likely overstating the health of the manufacturing sector. A Federal Reserve report last month showed factory output fell 0.3% in September and remained 6.4% below its pre-pandemic level.

Manufacturers and suppliers said last month that they “continued to operate in reconfigured factories” and each month “became more and more proficient at increasing production.”

While manufacturers’ sentiment remained optimistic, there were two positive comments for every cautious comment, down slightly from September.

The outcome of Tuesday’s vote should lead to a brief period of uncertainty. President Donald Trump is behind former Vice President and Democratic Party candidate Joe Biden in national opinion polls.

Wall Street stocks were trading higher after their biggest weekly loss. The dollar was stable against a basket of currencies. US Treasury prices have gone up.

(GRAPHIC: ISM PMI -)

NEW FORCE CONTROLS

Fifteen industries, including clothing, food, furniture and transportation equipment, recorded growth in the last month. Textile factories and the printing press reported a contraction.

The continued recovery in manufacturing will likely keep the economy floating, with growth expected to slow sharply in the fourth quarter after a historic annualized expansion rate of 33.1% over the July-September period.

Growth in the last quarter, which followed a record contraction rate of 31.4% in the April-June quarter, was boosted by more than $ 3 trillion in government assistance in the event of a pandemic. No deal is in sight for another round of fiscal stimulus.

A separate Commerce Department report on Monday showed construction spending rose 0.3% in September, slowing after rising 0.8% in August.[[[[

(GRAPHIC: Construction expenses -)

The coronavirus crisis has shifted spending from services towards goods that complement the new lifestyle. Spending on goods has exceeded its pre-pandemic level.

Chemicals makers said “business continues to be strong”. Food manufacturers said they had “increased production due to supplying stores for the second wave of COVID-19”. Manufacturers of computer and electronics products said the coronavirus continued “to have an effect on supplier support and operations, more from a workforce reduction perspective than in unavailable material.”

The ISM new orders forward sub-index jumped to a reading of 67.9 last month, the highest reading since January 2004, from 60.2 in September. Customer inventories remained too low for the 49th consecutive month and order books increased steadily, which bodes well for future production.

“On the rise, social distancing efforts, which have been a factor in which consumers have shifted spending from services to goods, show no signs of abating, especially as the number of cases of the virus increases to new, ”said Sarah House, senior economist at Wells Fargo Securities in Charlotte, NC.

“This shift towards spending on goods should continue to support orders, but it is unlikely to continue at the same pace as before when an initial wave of spending on manufactures aimed at setting up home offices and remote classrooms boosted spending on goods. “

With orders booming, employment in the manufacturing sector increased for the first time since July 2019. The ISM’s manufacturing employment indicator rose to 53.2 from 49.6 in September. This likely supported overall job growth in October.

According to a Reuters survey of economists, non-farm payrolls likely increased by 700,000 jobs last month after increasing by 661,000 in September. Job growth slowed to a record 4.781 million in June. About 11.5 million of the 22.2 million jobs lost during the pandemic have been recovered.

The government is expected to release the October jobs report on Friday.

Reporting by Lucia Mutikani,; Editing by Chizu Nomiyama and Andrea Ricci

Original © Thomson Reuters

Originally posted 2020-11-03 03:06:12.

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