US regional manufacturing surveys point to upside

Regional manufacturing surveys have been positive so far for the month of July, indicating a pickup in the pace of manufacturing activity. The Empire state manufacturing index released on Monday unexpectedly increased to 9.46 in July from the prior 7.84 while the market was anticipating a drop to 5.00. Today’s release of the Philadelphia Fed index also showed a surprising jump with a reading of 19.8 from the prior month’s 12.5 (the market consensus was for a drop to 8.0). Regional Fed reports are recognized for their timeliness because the results are published in the same month covered.

Furthermore, the two districts that have reported so far represent some of the more populated regions in the US. Overall, this suggests the potential for an improved outlook in manufacturing which may translate to a strong July ISM reading (released on the first business day of the following month). The surveys are leading indicators as they provide a gauge of manufacturing activity and even though they have a strong relationship it is important to note that respondents may be more optimistic at times. Two recent examples are the strong consumer confidence readings despite a drop in retail sales and rising homebuilder confidence amid relatively soft housing starts. However, markets react in the short term to survey releases before data showing real activity can confirm or contradict the results of the survey. As such, the potential is for upside in the July ISM manufacturing report which could boost the USD as it suggests continued improvement in economic activity

Source: Forex.com

18.07.2013