Home ISM Manufacturing PMI Enters Contraction Zone: 49 Points –
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ISM Manufacturing PMI Enters Contraction Zone: 49 Points –

The ISM Manufacturing PMI dropped to 49 points. This is a big disappointment. It was expected to remain almost unchanged after hitting 50.7 points last month, reflecting very slow growth. This is the first major hint towards the Non-Farm Payrolls on Friday. The employment component is of special interest. The last time that the manufacturing PMI was under 50 was back in November 2012. The employment component hardly budged: 50.1 after 50.2 last month. This means static employment in the manufacturing sector.

EUR/USD and USD/JPY were pressured before the publication. USD/JPY crashed below 100 on the result. EUR/USD is on the rise following the publication, reconquering the 1.30 line.

A big disappointment comes from the new orders component: it dropped 3.5 points from 52.2 to 48.8 points -a big shift from growth to contraction. Prices also dropped into contraction zone, falling to 49.5 points from 50 seen beforehand. This is another sign of looming deflation. Inventories rose by 2.5 points, but this isn’t a positive sign: more inventories now usually mean less growth later on.

It is important to remember that the manufacturing sector is only a small part of the economy: services is the vast majority of the US economy.

This disappointment reduces the chances of tapering QE, just after Williams provided a hint about tapering in the summer.

Earlier, Markit revised its manufacturing PMI for May to the upside: from 52 to 52.3 points. No change was expected. This joins upbeat figures for the UK, Spain, Italy, France and Germany. Chinese PMI dropped below 50 according to Markit.

Construction spending was expected to bounce back and rise by 1.1% after falling 1.7% last month, but it also disappointed with a rise of only 0.4%.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.