Two months ago, ISM manufacturing slumped into contraction stateside, as the global factory malaise triggered in part by the trade war finally boomeranged, making landfall in the US.
Sub-50 ISMs need not necessarily presage a recession, but markets were not amused early last month, when September’s ISM print validated the manufacturing contraction tipped in the August number. Nor was anyone particularly excited when ISM services printed a three-year low, suggesting some spill over to the part of the US economy that “matters”.
Fast forward four weeks and the latest read on ISM manufacturing is lackluster. The October print is 48.3, representing just a feeble bounce from September’s 47.8 and missing expectations (consensus was 48.9).
At 46.2, production now sits at the lowest since April of 2009.
New orders rose pretty handily to 49.1 from 47.3, employment jumped to 47.7 from 46.3 and, notably, new export orders rose all the way to 50.4, jumping back into expansion from 41.0.
Imports fell to 45.3, the lowest since May of 2009.
“Comments from the panel reflect an improvement from the prior month, but sentiment remains more cautious than optimistic”, Timothy Fiore, Chair of the ISM Business Survey Committee remarked.
Equities appear to have taken this is in stride, even as it shows the US has now spent three months mired in a manufacturing downturn.
Fed funds show another quarter point rate cut priced in by mid-2020 following the report, and Treasurys trimmed losses. It could be that the combination of a better-than-expected jobs report and another weak ISM is “just right”, as it leaves Fed easing on the table while suggesting the economy isn’t about to dive off a cliff.
To be sure, the headline print on October ISM is not as bad as it could have been, and is likely being viewed in the context of Thursday’s egregious Chicago PMI, which some feared set the table for a deeper plunge into contraction territory.
WHAT RESPONDENTS ARE SAYING…
- “Customer demand is down, and we are expecting a very soft fourth quarter, without much relief in sight for Q1. Suppliers report the continued rise in labor costs, which are ultimately reflected in the rising product costs.” (Computer & Electronic Products)
- “The chemical manufacturing industry is depressed; demand across many markets globally is down, and pricing is as a result.” (Chemical Products)
- “Automotive sales continue to decrease; however, trucks and SUVs are still providing decent revenue. Cautiously optimistic for the near term.” (Transportation Equipment)
- “Economy is showing slight signs of weakening. The same business headwinds on trade, tariffs, and currency uncertainty are making the environment challenging.” (Food, Beverage & Tobacco Products)
- “Been hearing from lots of my suppliers that their business is down and [they are] looking for more work in the metal processing [and] machining areas. We remain very busy.” (Fabricated Metal Products)
- “Production demand is softening; some [of it is] due to seasonality, [but] much [is] due to customer order rate declining and dealer inventory stabilizing.” (Machinery)
- “Business for thermoplastic resins is very strong, but margins continue to be under pressure due to tariffs and global economy uncertainty.” (Plastics & Rubber Products)
- “Trade cost pressures continue to be a headwind in our business.” (Paper Products)
- “Automotive related manufacturing is definitely slowing in the U.S. I think we are seeing the negative impacts of the tariff war with China and the unsigned [U.S.-Mexico-Canada Agreement] deal starting to hurt consumer confidence, especially on large purchases. Corporations are slowing orders/production accordingly.” (Primary Metals)
- “Our business levels have softened over the last three to five months, in the U.S. market [and] globally. Germany and China are both experiencing similar slowdowns. We are in the industrial industry, and the outlook appears to remain soft into Q1 of 2020.” (Electrical Equipment, Appliances & Components)