There’s finally light at the end of the tunnel for the US manufacturing sector, which fell into a recession in the second half of 2019.
Data from the Institute of Supply Management shows the sector expanded in January after contracting for prior five straight months.
The ISM’s manufacturing purchasing managers’ index climbed to 50.9, beating consensus estimates of 48.5. Any reading over 50 denotes growth.
Still, it might be too soon to pronounced the sector has emerged from its downturn, Jennifer Lee, senior economist at BMO, told CNN Business. The ISM data is based on a survey and a single month of good news.
“I’d be watching for some sort of turnaround in the industrial production series for manufacturing, which has been down from year-ago levels for six consecutive months,” Lee said.
Whatever the case, the numbers appear to be favorable.
“It seems likely that the phase one trade deal with China has generated a positive lift for the sector by giving some certainty that there will be no more tariffs, at least in the near term,” said James Knightley, ING’s chief international economist.
Worries and uncertainties about the trade war between the United States and China weighed on global growth forecasts and business investment last year, dragging sector data down between August and December.
But with a partial trade deal in place, companies seem more likely to get back on track with their plans, lifting orders and output and thereby ending the mini downturn, said Knightley.
The positive surprise of Monday’s ISM data adds to other indications that the economy is in a decent place.
“With global growth stabilizing in recent months and domestic economic activity also starting to pick up, the ISM survey adds to the evidence that 2020 is likely to be a better year for US manufacturers,” wrote Capital Economics’ Senior US Economist Andrew Hunter in a note.
But dark clouds remain.
The coronavirus outbreak could prove to be a headwind for American factories, depending on how long it lasts. China’s manufacturing sector is expected to get hit by the quarantines and shutdowns that attempt to to contain the virus, which could hurt US factories that rely on parts and materials from abroad.
Uncertainty over Boeing (BA)’s 737 Max crisis also weighs on the industry. The aircraft maker is one of the biggest manufacturers in America, and it is not yet clear when the jet – which was grounded last March – will again be permitted to fly.
