A positive surprise in an index of new orders at U.S. manufacturing companies in August suggests that the economy could be heading into a phase of "early acceleration," according to analysts at Wolfe Research.
Citing an internal framework used to gauge the U.S. business cycle, the Wolfe strategists suggested that the figures may indicate that this pattern of growth and contraction experienced by the economy is entering into a nascent period of expansion.
U.S. manufacturing sector activity remained in contraction territory for a sixth straight month in August, albeit at a slower rate, as companies flagged the impact of President Donald Trump’s sweeping import tariffs.
The Institute for Supply Management said last week that its manufacturing purchasing managers’ index came in at 48.7 last month, compared to 48.0 in July and economists’ estimates of 49.0.
Although the weak reading was possibly suggestive of an economic slowdown due to the levies which many economists have flagged, the survey’s more forward-looking new orders sub-index jumped to 51.4 from 47.1. The measure had previously contracted for six months straight.
"While this typically suggests investors position portfolios to earlier cyclical stocks, our sense is that the [business] cycle will continue to oscillate between earlier and late until the turn of the year," the Wolfe analysts said. They added that, overall, the ISM manufacturing report was "mixed."
The sub-index’s production gauge slipped into contraction territory, a trend which Susan Spence, Chair of the ISM’s Manufacturing Business Survey Committee, said led to the "nominal" uptick in the headline PMI figure.
Meanwhile, many factories continued to shed jobs, albeit at a marginally cooler pace. The survey’s measure of manufacturing employment inched up to 43.8 from 43.4 in July, which was itself the lowest level since 2020. ISM said "managing head counts" remains the norm at companies "as opposed to hiring."
Against this backdrop, the Wolfe analysts said they see three major catalysts for a "sustainable shift" to an early-cycle business environment: an easing in Trump’s tariff policy, a loosening of financial conditions by the Federal Reserve, and stimulus from a recently-passed U.S. fiscal bill.
Source :
https://www.investing.com/news/economy-news/could-this-us-economic-figure-point-to-upcoming-growth-wolfe-research-weighs-in-4231375
