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Data released on Tuesday showed the ISM Manufacturing index rose to 56.0 in August, surpassing expectations. Despite the number, analysts at Wells Fargo see that the confidence in the recovery appears weak, as manufacturers continue to cut employment. 

Key Quotes: 

“The factory sector’s recovery continued to hum along in August with the ISM manufacturing index rising to 56.0. That marked the highest level for the index since late 2018. But while the recovery may be broadening, the report raises a number of caution flags regarding the sustainability of the recovery.

“Despite the high reading on new orders, the employment component, at 46.4, is consistent with manufacturers continuing to lay off workers. The need to further pare back employment, even if at a slower rate as seen in August, highlights that overall demand remains weak and manufacturers are not fully convinced that the recovery is durable.”

“In the near term, the manufacturing sector’s prospects continue to look good relative to many parts of the service sector. The ongoing need to social distance has shifted spending away from in-person services toward goods.”

“Looking ahead, as the pandemic drags on, lingering softness in sales and an uncertain global outlook will weigh on capital spending, so manufacturers—even those tied most tightly to goods spending—are hardly in the clear. Many manufacturers themselves are holding back capital investment for the remainder of this year, according to today’s report.”

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