“The lurches down in manufacturing PMIs are dismissed as irrelevant prehistoric artifacts that should be ignored”, Albert Edwards wrote late last month, in response to those who have variously insisted that the worsening global factory slump could safely be ignored (especially in developed economies) thanks to the resilient services sector.
“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”, Albert continued. “And not just because of sterling’s dismal performance!”
Suffice to say the factory slump hasn’t let up. Indeed, manufacturing PMIs for major economies from Europe to Asia stayed below the 50 line last month and stateside, the Chicago PMI sank to 44.4, a grievous miss versus consensus (51) and 5 handles below the most pessimistic estimate from two-dozen economists surveyed.
Read more: If Albert Edwards Had A Swiss Franc For Every Time Someone Told Him To Ignore Manufacturing…
Fast forward to Monday and ISM non-manufacturing printed 53.7 for July, missing consensus (55.5) by a country mile and down from 55.1 in the prior month.
That’s the worst print since August of 2016. As is the case with the manufacturing gauge (and, by the way, with 10-year US yields and a variety of other reflation/economic optimism proxies) the last vestiges of any “Trump bump” are gone.
The breakdown looks weak pretty much across the board. New orders dropped to 54.1 from 55.8 while new export orders fell to 53.5 versus 55.5 previously.
This doesn’t bode well for the biggest part of the US economy and it appears to suggest that the manufacturing slump cannot, in fact, be ignored.
If there’s a silver lining, it’s that this makes the case for more Fed easing, but as ever, the risk is that the data ends up confirming that we are not, in fact, “mid-cycle” and therefore any rate cuts cannot be pitched as “mid-cycle adjustments”.
As noted on Sunday, late-cycle rate cuts aren’t friendly to stocks for a variety of obvious reasons.
The Trump Bump has now become the Trump Dump…