Dow climbs 1% after manufacturing data shows growth

US shares rose strongly today after two economic reports showed expansion in manufacturing last month.

The bounce on Wall Street is a positive start for July, after a downbeat June in which all three major US stock index benchmarks lost ground. By early afternoon in New York, the Dow Jones was trading up 0.99% or 148 points at 15,058 and the S&P 500 advanced 1.1% or 17.8 points to 1624.

The pickup in share prices was sparked by some upbeat data earlier in the day. Markit’s purchasing manager’s manufacturing index came in at 51.9 for June. This wasn’t a great result, given the mid-month estimate had been 52.2 and May’s level was 52.3, with slower growth in new orders pulling the result down a little, but it’s still indicates that manufacturing activity continues to expand, albeit at a modest pace.

We also had manufacturing data from the Institute of Supply Management. The ISM polls hundreds of manufacturing firms in order to compile its monthly diffusion index, which improved to a robust 50.9 in June, breaking through the 50 barrier that denotes the difference between contraction and expansion from May’s reading of 49.0. The PMI report suggests the rate of growth is easing, while the ISM data suggests things have got better since May, which muddies the water somewhat, but both agree that the manufacturing sector saw moderate growth last month. This is in line with the broader economy, where indicators have suggested the economy is growing but remains lukewarm.

A further source of optimism for the economy came from rising construction spending in May, increasing 0.5% month-on-month, to give a year-on-year change of+ 5.4%.

It’s a positive sign that growth-positive data has been met with a warm response by investors. Too often in recent weeks we have seen the rather unhealthy response of poor data being met with buying on hopes of extended stimulus from the Fed. Today gives hope that we may be resuming a more normal stretch where strong economic data equates to better prospects for companies and therefore improved share prices.

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