Manufacturing sector surveys turn more optimistic, signaling a moderate recovery

While the general macroeconomic data has been on the positive side, we continue to expect only modest growth going forward.

Looking at the latest manufacturing ISM survey, firms are clearly more optimistic, with new orders rising strongly (+6 points in the sub index). Also, the production component indicates an improvement (+3 points to 52.8). While, overall, this data is encouraging, we caution against over-optimism – for us, the contraction in the manufacturing sector seems to be coming to an end, but a significant recovery is unlikely. Indeed, only 7 out of the 18 surveyed ISM manufacturing sectors indicate growth – with the remaining 11 industries reporting contraction. In addition, the durable goods report for August confirms the on-going weakness in business capital spending. Core capital goods shipments declined during 9 out of the last 12 months. Taking this and other data into account, while we expect a growth acceleration during the third quarter, we believe GDP growth is unlikely to surpass the 2% bar by much.

Gero Jung – Chief Economist – Mirabaud AM