- ISM index climbed in June to highest level in more than a year
- Collateral Brexit damage of firmer dollar remains concern
American factories in June were well on the way to recovery from the deleterious effects of a stronger dollar and plunge in oil prices. Then came Brexit.
The latest survey of purchasing managers by the Institute for Supply Management showed manufacturers were continuing to receive more orders and boost production last month after slumping for much of last year. The Tempe, Arizona-based group’s factory index climbed in June to the highest level since February 2015, figures showed Friday.
The stronger-than-projected reading of 53.2, where anything greater than 50 signals growth, was based on responses received before U.K. voters decided to leave the European Union, which threw global financial markets into convulsion and caused the dollar to firm. While American factories have few customers in the U.K. and only a few more in the EU, it’s the collateral damage from a rising dollar that will cause sales to slip globally and undercut the emerging improvement in U.S. consumer spending.
"Hopefully, the rise in the index is a sign that the pace of deterioration in some manufacturing industries has stabilized,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “Manufacturing firms that produce consumer goods continue to see solid demand.”
Concern over the impact of Brexit prompted ISM to re-survey their members from June 25 through June 29. What they found was that purchasing managers believe the vote will have a negligible effect on hiring and capital spending.
The one bit of anxiety was over the outlook for the dollar and financial markets. Should the greenback continue to firm as investors seek a safe haven from the Brexit storm, and stocks plunge, then all bets are off.
“The impact is thought to be very negligible across the large majority” of purchasing managers surveyed, Thomas Derry, chief executive officer of ISM, said in a Bloomberg Television interview. While the primary concern was the strength of the dollar, most businesses showed “a relatively muted reaction” in terms of changes to their investment and employment, he said.
If the market reaction this week is any guide, then it could be clear sailing for American factories. U.S. shares on Friday were heading for the biggest four-day rally in nine months. The Bloomberg dollar index has declined for four consecutive days and remains well off the high reached in late January.