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US PMI Data Improves Further

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Markit Economics have just published the April Purchasing Managers Index (PMI) for the Services sector of the US economy. This month’s reading is 55.0, up from March’s 55.3 and ahead of the consensus estimate of 54.2.
Additionally the Institute for Supply Management (ISM) has released it’s version of the Manufacturing PMI for April. This is showing at 55.2, higher than last month’s 53.1 and ahead of the 54.1 consensus estimate.

Fundamentally US data is showing consistency in its strength and puts the country on course for robust recovery over the next 18 months or so. The Federal Reserve is being particularly responsive to the needs of the domestic economy as it strives to ensure that the foundations for lasting stable growth are laid firmly. Building in this stability is more important now than ever before. As the US is about to hand the mantle of being the world’s largest economy over to China international affairs pose threatening uncertainties.

A recent unexpected fall in Chinese manufacturing is shaking global investor confidence as is the re-escalation of conflict in the Ukraine. Problems in emerging markets and a European economy on the brink of a deflationary spiral all impact the growth prospects for the United States.

Keeping US economic progress on track in light of actual and potential global developments needs to become a priority for the Fed’s Open Market Committee. Acknowledgement of specific exogenous threats to the US recovery would be a good starting point for the Federal Reserve that has heretofore only given credence to broad international factors.

Despite the headline success of the US recovery, when investors are preferring Spanish three year bonds to the US equivalent, as evidenced by the yield differential on new issues, there must be scope to question whether the Fed is truly taking a holistic view to the economic situation.

A series of speeches by Federal Reserve officials, including the chairwoman Janet Yellen, later this week may shed some further light on this.

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