The US Manufacturing Purchasing Managers’ Index (PMI) is a critical economic indicator used to measure the activity of the country’s manufacturing sector. This index is calculated through a monthly survey that includes managers of manufacturing companies, where the index is evaluated based on several factors including production volume, demand, employment, supply, and prices. If the index value is higher than expected, this means improved manufacturing sector activity, which reflects growth in the US economy in general. As a result, the value of the US dollar could rise in the Forex market due to increased confidence in the economy and improved demand for industrial products.
On the other hand, if the index value is lower than expected, this indicates a decline in manufacturing sector activity, which indicates the possibility of a contraction in the US economy. This could lead to a decline in the value of the dollar in the Forex market due to declining confidence in the US economy. Therefore, the PMI is an important tool for investors and traders to make informed investment decisions. However, it should be used as part of a comprehensive analysis that takes into account other sources of economic, political and social information to make sound investment decisions.
The release of the Manufacturing Purchasing Managers’ Index (PMI) in the United States has a significant impact on the trading of the US dollar in the Forex market. The index is an important measure of the state of the US economy and therefore affects investors’ and traders’ expectations about the strength and future direction of the US economy. When the index release is higher than expected, it indicates an improvement in the economy and increased activity in the manufacturing sector, which leads to an increase in the value of the US dollar.
US manufacturing contractions in April
The US manufacturing sector experienced a contraction in April, with new orders falling for the first time in 2024. Despite this, high-end companies maintained production growth, and companies continued to hire, driven by optimistic expectations for the coming months. Manufacturers reduced their purchasing activities in response to the decline in new orders, which led to a decrease in pre-production inventories. Meanwhile, product prices rose at a slower rate, but input cost inflation accelerated, indicating continued upward pressure on selling prices in the near term.
The seasonally adjusted US Standard & Poor’s Global Manufacturing Purchasing Managers’ Index (PMI) matched the neutral index of 50.0 in April, reflecting stable business conditions at the start of the second quarter. This was down from 51.9 in March, marking the end of a three-month period of improving manufacturing conditions.
In April, new manufacturing orders saw a modest decline for the first time in four months. This decrease is due to clients’ caution and reluctance to commit to new projects amid weak market conditions. Despite this, new export orders continued to grow, recording an increase for the third month in a row, although the increase was slight. Manufacturing production also witnessed growth for the third month in a row, albeit at a slower rate. As new orders declined, production was often continued by filling orders previously received. As a result, the backlog of orders has fallen significantly, resulting in the largest decline in outstanding business since January.
The recent rise in manufacturing output has been fueled by job creation for the fourth straight month, with hiring accelerating to its fastest rate in nine months. Participants attribute the hiring increase to replacements for departures and optimistic production forecasts for the coming months.
US manufacturing sector: May recovery stimulates growth and optimism
In May, the US manufacturing sector saw a rebound in new orders, ushering in a period of accelerated production growth in the middle of the second quarter. This rise in demand, coupled with a rebound in business confidence and a positive future outlook, has led to the hiring of additional staff, revitalized purchasing activity, and increased inventory of finished goods. At the same time, there has been a notable escalation in input cost inflation, prompting companies to adjust selling prices accordingly.
The seasonally adjusted US Manufacturing Purchasing Managers’ Index (PMI) rose to 51.3 in May, indicating a modest improvement in the sector’s health, the fourth such improvement in the past five months. Despite a slight decline in April, May saw a renewed expansion in new orders, albeit marginal due to prevailing economic conditions. However, the rise in total new business, especially in export orders, showed strong momentum, reaching its highest pace in two years. Furthermore, there were promising signs of increased demand from Europe, along with growth in new orders coming from Asia, Canada and Mexico.
The enhanced influx of new orders, coupled with improved material availability, led to a strong increase in production during May, outpacing the growth rate in April. With positive expectations for future production and new orders, companies showed confidence in expanding their capacity, which boosted sentiment across the sector. This optimism has prompted manufacturers to increase hiring, intensify purchasing activities, and boost stocks of finished goods.
Notably, employment levels rose for the fifth consecutive month in May, marking the fastest pace since July 2023, reflecting positive sentiment and the fulfillment of previously unfilled positions. Despite the marginal increase, the expansion in buying activity in May represented a reversal after three months of decline, although not enough to avoid a decline in buying inventories.
 saw a rebound thanks to higher new orders and improved confidence.){kind=link}