US manufacturing surprises analysts with a strong surge in growth

Following strong manufacturing figures from France, Germany and the eurozone, the US has surprised analysts with decisively strong growth to a four month high in July.

The Markit purchasing manager's index (PMI) for manufacturing rose to 53.2 from 51.9, against analyst expectations of a flat rate of growth at 51.9.

Any figure above 50 implies growth, so these results are very encouraging.

The volume of new work received by manufacturers with the new orders index up to 55.1 from 53.4 the month before - the biggest increase since March. While the increase in new orders reflected an improvement domestically, new export orders also returned to growth at 52.3 from 46.3 in June 2013.

Chris Williamson, chief economist at Markit, commented:

The U.S. manufacturing sector picked up momentum again in July, with output, order books and employment all growing. The goods-producing sector acts as a bellwether of the wider economy, and the upturn in July therefore bodes well for the pace of GDP growth to have picked up again in the third quarter after a likely easing in the second quarter.

The pace of manufacturing growth nevertheless remains well below that seen at the start of the year, in part reflecting weaker demand from many export markets, notably China and other emerging economies. Employment growth is disappointingly weak as a result, as firm focus on cost-cutting to boost competitiveness.

The Fed will therefore be encouraged by signs that the sector is showing signs of reviving, but will no doubt remain cautious with regard to the longer-term outlook for the economy and the job market. It is likely that policymakers will generally need to see growth strengthen further before sounding more confident about the ability of the economy to withstand any tapering of stimulus.