U.S. Manufacturing Expands for First Time In 19 Months

The manufacturing sector in the U.S. expanded for the first time in 19 months as government stimulus and an improving global economy has helped revive demand. The Institute for Supply Management’s factory gauge to 52.9 from 48.9 as new orders, production and employment improved. Fresh purchases saw the sharpest rise to 64.9 from 55.3 which may be a sign of sustainability as we saw customer inventory levels decline as well. However, an increase in prices paid to 65.0 from 55.0 could foreshadow increasing inflation risks which may force the Fed to hike rates sooner than expected. A switch toward a tightening policy could limit the scope of a U.S. recovery which could be bearish for the dollar over the medium term. However, rising interest rates expectations could provide greenback support in the near-term.

Meanwhile, a 3.2% rise in pending home sales added to the improving housing picture which is seeing a boost from the $8,000 tax credit provided by the government and lower interest rates. Buyers are stepping up demand as the program comes to an end, but fears are that a drop off could materialize as incentives disappear and rates rise. However, the bulk of purchases were made in the south where we are seeing the highest rate of foreclosures, which has industry experts worried that once the discounted inventory is exhausted the sector could stagnate.