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US factory activity surges to a 14-year high in August

According to the latest report of the Institute for Supply Management (ISM) on activity in US factories, manufacturing surged in August, boosted by a rise in new orders but amid concerns over rising raw material costs as a result of import tariffs.

Manufacturing expanded in August as the Purchasing Managers’ Index (PMI) jumped to 61.3 from July’s 58.1. This indicates strong growth in manufacturing for the 24th consecutive month, led by continued improvement in all sub-indices.

The PMI reached its highest level since May 2004, when it registered 61.4. A reading above 50 indicates that the sector is expanding while a reading below 50 indicates that it is contracting.

In the meantime, German industrial orders fell unexpectedly in July on weak foreign demand, data released by the Federal Statistics Office showed last week. This is further evidence that trade tensions may be starting to bite Europe’s largest economy.

The report shows that contracts for German goods were down by 0.9 per cent after a revised plunge of 3.9 per cent in the previous month. The July reading came in below analysts’ predictions that called for a rise of 1.8 per cent.

In the meantime, however, the Ifo Institute for Economic Research raised its 2018 growth forecast for Germany to 1.9 per cent from 1.8 per cent previously, citing a better-than-expected performance in the first half of the year.

Finally Britain’s large services sector picked up more strongly than economists expected during August. The services index, compiled by IHS Markit/CIPS Purchasing Managers’ Index, came in at 54.3 in August, up from 53.5 in July.

The services sector makes up about 80 per cent of the British economy and comprises everything from restaurants to banking.

However, feedback from firms shows that Brexit worries were slowing investment for the year ahead. These figures were better than economists’ forecasts.

The August services numbers compensate for the slowing growth in the manufacturing sector, which showed up in PMI figures for August released earlier in the week. The slowdown in manufacturing growth in August was caused mainly by a sharp downturn in exports. The manufacturing index stood at 52.8, the lowest reading in 25 months.

This report was compiled by Bank of Valletta for general information purposes only.

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