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Prospects Daily: U.S. Manufacturing activity expands in January

Global Macroeconomics Team's picture

Important developments today:

Treasuries fell before reports on jobs and manufacturing.

U.S. Manufacturing expands in January.

China’s manufacturing continued to grow at a sustained rate in January.

Treasuries fell before reports on jobs and manufacturing. U.S. Treasury debt prices dropped on Monday, declining for the first time in three days, as investors speculated that data on jobs (Fri.) and manufacturing (Mon.) this week are likely to show the U.S. economic turnaround is gaining traction. Analysts expect that any signs of a shift in demand by major foreign investors will keep market bearish. U.S. government bonds posted the worst returns in a decade last year in the wake of record debt sales, but posted strong gains last month amid growing concern that the economic recovery will slow. Yields on 10-year notes, which move inversely with prices, increased 3 basis points (bps) to 3.62%, while 30-year bond yields widened 1 bp to 4.5% today, according to BGCantor Market Data. Meanwhile, the difference between yields on 10-year notes and Treasury Inflation Protected Securities (or TIPS), a gauge of trader expectations for inflation, was 2.32%, versus the five-year average of 2.17%.


Source: Institute of Supply Management


U.S. Manufacturing expands in January. The manufacturing sector showed signs of further expansion in January, as the Institute for Supply Management’s factory index rose to 58.4, the sixth straight monthly expansion which brought the index to the strongest level since August 2004. Factories have been stepping up production since mid-2009 to meet stimulus-led gains in demand, both domestic and external, as well as an increase in orders to replenish record cutbacks in inventory levels. The index for new orders at factory gates grew from 64.8 in December to 65.9 in January, with 13 of the total 18 industries reporting expansionary activity. The current report provides significant assurance that the manufacturing sector’s recovery is continuing to provide the foundation for a broader economic recovery.

In other news, U.S. consumer spending increased…Consumer spending by U.S. households rose for a third month in December, booking a 0.2% (m/m) increase in purchase following a larger-than-expected 0.7% (m/m) gain in November. At the same time, personal incomes rose 0.4% (m/m), leading to an increase in the savings rate, which rose to 4.8% from 4.5% in November. Consumer spending, which accounts for the majority of economic activity, contributed 2% to GDP growth in the last quarter, when the economy grew at an annualized pace of 5.7% according to latest estimates.

Among emerging markets:

In East Asia and Pacific, China’s manufacturing continued to grow at a sustained rate in January, for the third consecutive month according to the purchasing managers’ index released by HSBC Holdings Plc and Markit Economics. The seasonally-adjusted index rose to 57.4 in January from 56.1 in December. The government-backed Purchasing Managers’ index fell to a seasonally-adjusted 55.8 from 56.6 in December. Due to strong growth in manufacturing analysts expect the government to begin tightening in the coming months. China’s bank lending was cut to less than 1.1 trillion yuan last month as of January 28th, as Chinese banks recalled some loans.
In South Asia, India’s manufacturing output grew at the fastest pace in 17 months in January according to the Purchasing Managers Index compiled by HSBC Holdings Plc and Markit Economics which rose to 57.6 from 55.6 in December.

In Latin America and Caribbean, Peru’s consumer price inflation accelerated to 0.44 percent in January from the same month a year earlier.

In Central and Eastern Europe and the CIS, Russia’s economy contracted a record 7.9 percent in 2009, after expanding 5.6 percent in 2008, according to the State Statistics Service’s preliminary figures. Household spending contracted 8.1 percent last year, while net exports grew 58 percent. Fixed capital investment contracted 18.2 percent. The government expects the economy to expand 3.1 percent this year.

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