Manufacturing Rebound Continues

The latest set of US economic data released yesterday showed that despite the significant increase in the COVID pandemic over December, there were some bright spots in the economy. The ISM manufacturing index was seen rising to 2 and a half year highs at 60.7 in December. This marks a firm increase from the prior month's 57.5 and a strong beat of the 56.6 the market was looking for.

The factory sector has been on a steady and encouraging upward trajectory since the record lows recorded during the height of the COVID pandemic in Q1 2020. This latest increase has helped assuage concerns that the virus would impact manufacturing through company closures and employee absenteeism as a result of rising infection rates. Even more encouragingly, the data echoes similar gains seen in the UK, the eurozone and China.

Supplier Issues Raise Concern

There are some not-so-postitive aspects to note, however. Looking at the breakdown of the data, the increase was predominantly driven by a heavy rise in the supplier deliveries component which rose to 67.6 from 61.7 in the prior month. Longer supplier deliveries times is typically representative of a healthy economy and buoyant consumer demand. However, in this case, the delay in supplier delivery times is attributed to the growing bottleneck in supplies due to the disruption caused by the pandemic.

COVID -Linked Boost In Demand

Despite the issues being caused by the pandemic, manufacturing is seeing as boom as the record number of people working from home or isolating is fuelling a strong growth in online shopping, especially for electrical goods. Sixteen of eighteen manufacturing sectors recorded growth in December with many noting that sales were now exceeding pre-COVID levels. However, manufacturing output as a whole is still around 4% lower than pre pandemic levels.

Technical Views

DOW JONES

The DOW is sitting just off all-time highs today following the reversal lower from 30680.9. The index has been grinding steadily higher over recent months though the move has lost some momentum, as signalled by the bearish divergence in momentum studies. While prices holds above the 29089.9 - 29563.4 level support zone, the outlook remains bullish.


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