US firms report strong summer as taper looms

BUOYANT figures from the US manufacturing and construction sectors released yesterday have added to the case for a reduction in the Fed’s QE programme soon.

Both Markit and ISM’s purchasing managers’ indexes (PMI) for manufacturing in August showed the sector in growth. Markit’s headline figure was 53.1, slightly lower than in July, while ISM’s was slightly higher, at 55.7. Any score above 50 indicates that the sector is growing.

Construction spending in July surpassed expectations with a 0.6 per cent increase from June. Residential construction spending also rose by 0.6 per cent, adding to the cumulative 18.6 per cent increase through the previous eight months of the year.

Amna Asaf of Capital Economics suggested that an improvement in activity abroad was a boost to America’s factories: “This strengthens the case for the Fed to begin tapering QE at the upcoming meeting.”

Asaf added that this suggested growth would be solid in the third quarter of the year: “clearly this is the sort of the news that could prompt the Fed to begin tapering its monthly asset purchases later this month.”

The US Fed currently makes $85bn (£54.7bn) of asset purchases every month, and is expected to reduce the quantity in one of its upcoming meetings if economic signals remain favourable.