US PMIs and US Dollar Talking Points:
- Manufacturing declines MoM, in line with expectations
- Strong services activity sends Services and Composite prints to nearly six year highs
- The US Dollar has retreated from its gains earlier in the week but holds firm after the print
Solid February PMIs Mark Highest Services Activity Since 2015, US Dollar Firms
Markit PMIs printed solidly for the month of February. Market Services PMI printed at 58.9 versus the forecast of 57.6, Manufacturing PMI prints at 58.5, right in line with the forecast, and the Composite PMI printed at 58.8, a slight increase from the previous month. The beat in Services activity is especially welcomed, as services accounts for around 75% of US GDP.
US PMI REPORT (IHS MARKIT) – February 2021
While Manufacturing activity slipped below last month’s level of 59.2, Services and the Composite rose to 71-month highs. The IHS Markit report notes that the rise in service activity was the strongest in nearly six years, with firms noting strong demand from clients. Shortfalls in manufacturing were attributed to extreme weather and supply shortages.
PMI prints above 50 denote an expansion and below 50 denote a contraction. The Manufacturing, Services, and Composite PMIs bottomed in April before sharp rebounds through May and June. In July, all three crossed back into expansionary territory and have remained there since. December’s prints saw a decline in service activity compared to the previous month, but activity rebounded in January.
The US print comes at the heels of a mixed February Euro area PMI print. In contrast to the US prints, Europe saw a beat in manufacturing and disappointment in the services sector, with manufacturing printing at 57.7 (forecast = 54.3) and services at 44.7 (forecast = 45.9). These prints edged the composite PMI up to 48.1, slightly higher than the forecast of 48 but still within contractionary territory.
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The solid US February PMI data comes shortly after a large beat to the upside from retail sales data for January (5.3% actual vs. 1.1% forecasted). Services activity was similarly buoyed by the stimulus bill passed at the very end of last year.
Other economic signs remain mixed. Thursday’s jobless claims print was worse than anticipated, with initial claims printing at nearly 100k higher than the forecast and an upward revision for January’s data. Comments from FOMC officials suggest that the unemployment situation remains more severe than headline numbers tell us. Further struggles in the labor market will continue to be a focus for policy makers.
While challenges remain, the US economic trajectory is improving. Covid cases are currently in a clear decline and vaccination efforts continue strongly. The Biden administration continues to push forward with a new stimulus bill and congressional leaders expect that it can be passed by the end of the month, providing a further tailwind to the economy. US Treasuries at the longer end of the curve have risen to pandemic highs this week, potentially driving a rebalancing in equities markets as US indices pull back from record highs.
US Dollar Index (DXY) 5-Minute Chart (February 16 – 19, 2021)
Chart prepared by Izaac Brook, Source: TradingView
The US Dollar held firm following the solid prints. Dollar strength had surged earlier this week as US yields rose to pandemic highs, with the DXY rising to the 91.00 level before reversing lower.
— Written by Izaac Brook, DailyFX Research Intern