If you thought last month’s Chicago PMI was bad, suffice to say you’ll be absolutely aghast at the July print.
A month ago, MNI’s Chicago gauge sank to 49.7 from 54.2, in the process handing the US its first contraction-territory business indicator.
Fast forward four weeks and the latest read on the gauge is 44.4, a grievous miss versus consensus (51) and 5 handles below the most pessimistic estimate from two-dozen economists surveyed. This, frankly, is a catastrophe:
The breakdown isn’t fun. Prices paid rose at a slower pace, the fall in new orders accelerated and employment dropped, falling into contraction territory, as did production.
“The Chicago PMI at these levels equates to a recession [in] 87.5% of occurrences”, Raoul Paul was quick to remind everyone. “It only failed once, when growth hit zero in 2015 but didn’t confirm a recession”, he added.
“[It’s] certainly nothing to be proud of”, CNBC’s Rick Santelli mused (if this trend continues, we might end up “subsidizing the losers’ mortgages” in the Midwest, right Rick?).
Invariably, this will stoke worries that recent rebounds in other factory gauges are either unreliable or false dawns.
It’s also likely to feed into fears that the global manufacturing slump is set to make landfall stateside.
There’s a vociferous debate raging right now about just how much emphasis market participants should put on the manufacturing sector. Earlier this month, Goldman suggested markets are perhaps a bit too fixated on souring manufacturing sentiment, given its dwindling impact on swings in overall economic output and labor market indicators.
For his part, SocGen’s Albert Edwards (one of the world’s most incorrigible bears) thinks you ignore free-falling factory gauges at your own peril. “The lurches down in manufacturing PMIs are dismissed as irrelevant prehistoric artifacts that should be ignored [but] if I had a Swiss franc for every time someone told me they were ignoring the manufacturing sector slowdown, just ahead of an economy collapsing into outright recession, I would be a rich man and not just because of sterling’s dismal performance”, he quipped last week.
In any event, this comes after a solid ADP report and ahead of July payrolls, but in the near-term, the only thing that matters is whether Jerome Powell manages to put a dovish enough spin on Wednesday’s assumed rate cut to convince markets the door is open to an honest-to-goodness easing cycle.