Late last week, data for October showed the US factory sector failed to stage a convincing recovery, as ISM manufacturing printed in contraction territory for a third consecutive month.
There were some bright spots, and the headline print was actually ahead of estimates, but the fact is, the global manufacturing slump (precipitated in part by the trade war) is now some semblance of entrenched in the US.
Thankfully, the services sector has held up reasonably well, although ISM non-manufacturing printed a three-year low for September, stoking concerns that the factory malaise was starting to bleed over. Well, on Tuesday, the market got an update on that, and the news is good. ISM non-manufacturing rebounded to 54.7 in October from a Trump-era low 52.6 the previous month.
The 54.7 read on the headline very nearly matched the most optimistic estimate from 64 economists. The range was 52-55.
Business activity jumped to 57.0 from 55.2, new orders rose to 55.6 from 53.7, employment surged to 53.7 from 50.4 (that looks like the biggest rebound in six months) and supplier deliveries moved higher.
That said, new export orders dropped to 50, from 52 and are now toeing the line between expansion and contraction. Backlogs fell to 48.5 from 54. Imports ticked lower.
All told, the headline beat will likely be enough to bolster the rosy economic narrative that’s taken hold amid trade optimism over the past several weeks.
It’s doubtful that anyone will be inclined to take a glass half-empty approach to the internals as long as everyone else is predisposed to believing the reflation narrative has wings.
WHAT RESPONDENTS ARE SAYING
- “Labor shortage remains a major factor in the increased cost of logistics.” (Accommodation & Food Services)
- “Current outlooks for commodities, equipment, and materials indicate purchasing now has leverage. Investment is still hampered by uncertainties in trade, global economic environment, manufacturing and the like.” (Construction)
- “Wrapping up fiscal year budgets – overall outlook is positive.” (Finance & Insurance)
- “Our business remains at the same level. There is no expectation for new orders, since clients normally do not make capital-expenditure decisions in the last quarter. Our only expectation is with regards to the U.S.-China trade deal outcome.” (Mining)
- “Positive-but-cautious outlook, with oil prices hovering above [US]$50 a barrel.” (Professional, Scientific & Technical Services)
- “Beginning of a new fiscal year brings a tremendous amount of spending.” (Public Administration)
- “Business remains brisk and well ahead of last year to date, as we near the peak of our busiest season. Looking ahead, our customers remain upbeat about their business well into next year.” (Real Estate, Rental & Leasing)
- “Preparing for an increase in holiday revenues.” (Transportation & Warehousing)
- Business is still lower than this time last year due to tariff issues and a soft market.” (Wholesale Trade)
True to form Markit is giving the opposite.