Manufacturing Surged… Now What? | S3 E118 | 02-04-26

Some encouraging economic data gave markets something to digest today — even as volatility stayed front and center.

In this episode of Markets with Megan, Verdence CIO Megan Horneman breaks down the latest Purchasing Managers Index (PMI) data for both manufacturing and services, highlighting a surprising jump in manufacturing activity. January marked the largest monthly increase since June 2020, pushing manufacturing back into expansion territory for only the third time in three years.

Megan walks through what’s driving the improvement, including a surge in new orders, easing supply pressures, and improving, though still fragile, employment conditions. On the services side, activity remained firmly in expansion for the 19th consecutive month, with strength in business activity and delivery times.

However, rising prices paid in both manufacturing and services signal that inflation risks can’t be ignored, and investors should stay cautious as economic momentum builds.

📊 What does this data mean for markets, inflation, and the economic outlook ahead? Watch now.

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https://youtu.be/1YhAO26XO1w

Disclaimer:  material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks 
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Transcript

Market Whiplash And Setup

Megan Horneman 0:00

Some good news on the economy. That's what we received this morning. It is Wednesday, February the 4th, and this is Markets with Megan. If you like this podcast, subscribe, hit the alarm bell, share it with your friends, family, or colleagues. Anybody who's interested in all that economic data that we see, the headlines that surround that, and then what it means for the market. And it's been a very big whips all day in the market. We've seen markets up, we've seen markets down, double digits, triple digits, but let's focus on the economic data that we received first thing this morning. And we got information from the purchasing managers index, both on the manufacturing side of the economy and the service side of the economy. Now, when we look at this monthly monthly number, we've seen manufacturing deeply in contraction territory for a very long time. But in the month of January, we actually saw the biggest monthly increase in manufacturing activity since June of 2020. And if you remember, in June of 2020, that's when we started to see the economy actually maybe get out of some of that, the COVID, a lockdown. And we saw manufacturing pick up then. We definitely saw it in January. It was in expansion territory, and this means it crosses above a level of 50. It rose into expansion territory for only the third time in the past three years. So this was definitely good news, especially on the manufacturing side. Let's look at the components of this index. All of the underlying components, and this index looks at a lot of different aspects of the manufacturing side of the economy. All of them rose for the month, with the exception of customer inventories. But what we focused on was the new orders. So this is manufacturing new orders. This has to do with AI, may have to do with uh trade as well, that we've had some of those tensions easing up. But new orders rose to the highest level we've seen since February of 2022. So a very good number. We saw all of these components also except the inventories and the employment component rise above that expansion contraction territory. So they're expanding. Employment did improve. Employment's been deeply negative or deeply in contraction territory for a very long time, but it actually improved quite a bit and is now pretty close to that expansion territory. Now, when you look at services, so let's look at the service side of the economy. Um, that was all actually that was also good. Um, it came in relatively unchanged from the last month, but the trend has been higher. And it was above 50, that level of expansion versus contraction, for the 19th consecutive month. The big moves higher in this were in um not only delivery time, so how services are delivering, but also in the broad business activity and then prices paid. Now, the prices paid, when that does increase, it does move that index higher. But it's something that we want to keep our eye on because prices paid in both of these indices does warrant some caution when it comes from an inflation standpoint because we have to see if that does filter into the consumer. That's all we have today. We'll be back with some more of this week's economic data. And if you want a history of our podcast, you can go to Marcuswithmegan.fm. Thank you.