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U.S. manufacturing sector rebounds after five month contraction

Christian Fernsby |
Economic activity in the U.S. manufacturing sector rebounded in January after a five month contraction, the Institute for Supply Management (ISM) reported.

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Topics: U.S.    MANUFACTURING   

The Purchasing Managers' Index (PMI) stood at 50.9 percent, the highest since July last year. The PMI dropped to 49.9 in August 2019, indicating the first contraction in a decade. In September, the index hit 47.8 percent.

Any reading below 50 percent indicates the manufacturing sector is generally contracting.

The U.S. economy in the fourth quarter of 2019 expanded at an annual rate of 2.1 percent, ending the year with an annual growth of 2.3 percent, according to recent data from the U.S. Commerce Department.

The gross domestic product (GDP) growth slowed in 2019, compared to 2.9 percent in 2018, primarily reflecting decelerations in nonresidential fixed investment and personal consumption expenditures (PCE) and a downturn in exports, the report said.

"Rate cuts by the Federal Reserve helped to blunt the effects of weaker growth abroad and trade wars in 2019," wrote Diane Swonk, chief economist at Grant Thornton, a major accounting firm, noting that the central bank's rate cuts partially offset losses in manufacturing with a "turnaround" in the housing sector.

The U.S. Federal Reserve lowered rates three times in 2019, amid growing uncertainty stemming from trade tensions, weakness in global growth and muted inflation pressures. These policy adjustments put the current federal funds rate target range at 1.5 percent to 1.75 percent.

The Federal Open Market Committee, the Fed's policy setting body, left interest rates unchanged last week and maintained a wait and see stance after wrapping up its first monetary policy meeting of 2020.

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