The Tuesday report on January manufacturing conditions from the National Association of Purchasing Management will provide important evidence of how well the U.S. economy started the new year after a strong 1999.
Market watchers typically focus on the association’s survey because it is one of the first reports released each month about the U.S. economy. The report is due Tuesday morning with an expected reading of 56.0 percent; any figure above 50 represents an expansion in the manufacturing sector.
Steven Wood, senior economist at Banc of America Securities, said the data would offer a valuable look at how the economy began the new year.
“I think the general view is that the manufacturing sector continues to expand,” Wood said. “But at the end of last year we got a little boost from Y2K precautionary building. To some extent that is no longer an issue, so we should see growth in the manufacturing sector slow a bit.”
Economists generally agree that readings above 50 percent in the headline number or any of the component numbers–among them employment, prices paid, inventories and new orders–indicate economic vigor. Conversely, a dip below 50 percent in any of these categories hints at a slowdown in that area of the business environment.
Monday’s Chicago purchasing managers’ index had little effect on futures trade, even though many market watchers believe the Chicago report is a telling indicator for the national number.
Although the purchasers’ report may influence futures trading Tuesday, its impact will be limited, given the preoccupation with the Federal Open Market Committee. Fed policymakers begin their two-day meeting Tuesday, and market participants widely expect a 25-basis-point increase in short-term U.S. interest rates to result.
Participants also have additional significant information to examine Friday–specifically hourly job wages, the unemployment rate and new-hire figures contained in the monthly non-farm payrolls report. Market participants expect that data to set credit futures’ tone for next week.
“We know the year ended on a very strong note, so now the question is how strong do we stay at the beginning of the year,” Wood said. “But I suspect mostly what people like to see is what we’re doing with the payrolls number next week.”
