Heisenberg Report

IHS Markit Hands ‘The Chosen One’ First US Factory Contraction Since 2009

If Donald Trump’s aides and advisors are looking for signs that the US economy is about to roll over ahead of an election year, they can take a gander at the flash read on IHS Markit’s factory gauge.

Unfortunately, it sank into contraction territory for the first time in nearly a decade, printing 49.9, down from 50.4 in July and 54.7 a year ago.

It was the lowest read since September 2009.

That, to quote the president, is “not good, not good”.

“The decline in the headline PMI mainly reflected a much weaker contribution from new orders, which offset a stabilization in employment and fractionally faster output growth”, IHS said.

Specifically, new orders fell to 49.5 from 51.7 in July. That is the lowest print in exactly a decade. “Manufacturing companies continued to feel the impact of slowing global economic conditions, with new export sales falling at the fastest pace since August 2009”, Tim Moore, Economics Associate Director at IHS Markit said.

Moore called the August numbers “a clear signal that economic growth has continued to soften in the third quarter”, and said the data “collectively point to annualized GDP growth of around 1.5%”. That is woefully short of the administration’s lofty 3% goal, and lower than CBO’s estimate which accompanied the group’s worrisome budget forecast released Wednesday.

Previously, only one factory gauge (MNI’s Chicago barometer) had fallen below the 50 demarcation line and earlier this month, regional surveys showed activity rebounding.

“The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the service sector”, IHS went on to caution, adding that “survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting”.

Just about the last thing anyone wants to see is the services sector starting to crack. The flash read for services was 50.9 in August, versus 52.8 in July. That was below the most pessimistic forecast from 11 economists. The prices charged gauge fell to 48.3, the lowest in series history.

Summing up, IHS said the following:

Business expectations for the year ahead became more gloomy in August and remain the lowest since comparable data were first available in 2012. The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.

-Ends-

Yes, “-Ends-“, which is what this presidency is probably going to do in 2020 unless Trump somehow figures out a way to ram through more tax cuts and stimulus at a time when the deficit is set to balloon to $1 trillion.

(Nordea)

Either that, or give up on the exceedingly quixotic effort to “rein in” China, a quest the “Chosen One” is reluctant to abandon.

35 minutes after the numbers crossed, Trump opened his Twitter app. “The Economy is doing really well”, he said.


 

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