In early 2021, cryptocurrency enthusiasts did not pay much attention to PMI reports, viewing them as just a collection of letters. However, the scope of economic indicators tracked by these investors has expanded significantly. From effective U.S. tariff rates to the subtle signs from the White House, these factors weigh on the cryptocurrency narrative. What insights does the latest economic report provide?
U.S. PMI Report
PMI reports offer feedback from purchasing managers about current economic conditions in specific sectors. In July, the finalized U.S. Manufacturing PMI came in lower than expected at 48, compared to an anticipated 49.5 and a previous 49. The data reflects a decrease in new orders and backlogs, resulting in shrinking employment and dwindling raw materials inventories, marking the fifth consecutive month of contraction in the manufacturing sector.
Susan Spence, Chair of the Business Survey Committee, remarked on the 1-point decline in the Manufacturing PMI to 48 in July, versus 49 in June. Despite this decline, the economy continued to expand following a brief contraction in April 2020, with the index remaining above 42.3. The New Orders Index saw a sixth straight month of contraction after prior expansion periods, rising slightly to 47.1 from 46.4, while the Production Index improved to 51.4. Prices Index remained in the expansion zone but fell to 64.8 from 69.7.
Comments from participants in various sectors are included, such as a purchasing manager in the apparel industry who highlighted the challenges posed by tariff wars, making it difficult to forecast costs and impacting trade ties. This uncertainty has led to unexpected, substantial expenses, complicating future outlooks.
The prevailing figures suggest that economic conditions have nearly reverted to those on the days the Fed initiated rapid rate cuts. However, tariffs are constraining Powell’s actions.
U.S. Non-Farm Employment
Today’s Non-Farm Payroll (NFP) and unemployment data were slightly disconcerting, with a modest monthly employment increase of 73,000. A surprising revision to the previous month’s figures from above 125,000 to 14,000 exerted downward pressure on stock futures and steeply reduced treasury yields.
The significant revision poses a peculiar scenario. With tariffs imposing inflationary pressures and the Fed opting to stay on the sidelines, employment concerns have intensified. The September meeting is distant, and decisions become challenging with tariffs creating inflation and employment chaos.
Ger Doyle, President of Manpower Group North America, noted that the report points to employment cooling, despite increased pressures.
Trump shared a strongly worded view before the data release, later calling Powell a “disaster” post-publication.
Comments from the Fed
Williamson from S&P flagged worsening conditions in the manufacturing sector. Despite the data, Fed member Hammack remained calm, stating the Fed faces more shortcomings on the inflation front than employment.
Fed member Bostic, whilst the article was being written, commented that recent employment data was noteworthy, with revisions being more significant. He cited a slowing labor market off its strong perch but considered inflation risks greater than those in employment.
Underlying labor market strength is robust, though the extent of future weakness remains uncertain. No significant layoff announcements have emerged, indicating a market slowdown rather than collapse.
Bostic expressed expectations for a rate cut this year, but wouldn’t alter this week’s Fed decision without data support. Ready to revise 2025 rate cut projections, he stressed that tariffs cannot be ignored, with price adjustments pending due to tariff impacts.
