US factories cut output in August while surveys show services surging. How do you trade a two-speed economy?
The Federal Reserve reported on 18 September that US industrial production was unchanged in August. Manufacturing output fell 0.3%, its first decline after seven straight monthly gains, while utilities jumped 1.8% (full report).
The surveys tell a different story for services. The ISM services index rose to 55.4 from 54.1 (report), and S&P Global's flash US PMI in August showed services activity at a 20-month high while manufacturing output slipped to a 13-month low. The ISM manufacturing index fell to 54.6 from 55.6 but stayed in expansion (report). The Federal Reserve then raised its target range to 3.75%–4.00% on 16 September (report).
So hard data and surveys don't line up neatly, and manufacturing and services are heading in different directions. We would like to hear how you deal with that.
- Do you give more weight to hard data such as industrial production, or to surveys such as the PMIs?
- Does a weak factory reading change your view of the dollar, or do you mostly follow services, jobs and inflation?
- When two reliable sources disagree, what do you do: wait for the next release, cross-check with a third, or trade smaller?
- Has a divergence like this ever caught you out, or helped you?
PMIs explained is a good refresher on how the survey numbers are built.
Please keep replies to your own reasoning. Posts that promise a direction or sell signals will be removed.
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