ISM Miss Is Bitter Pill For Optimists. Suggests US Manufacturing Slump Is Entrenched

In the first of this week’s big data reckonings, ISM manufacturing not only failed to extend October’s feeble rebound, but actually fell.

The closely-watched barometer printed 48.1 for November, well below the 49.2 consensus was looking for. The range was 46.4 to 51.3 from 61 economists.

This is a big letdown, and may bode poorly for ISM services later this week. This makes four months in a row in contraction territory for the factory gauge.

Amusingly, the IHS Markit manufacturing PMI was revised up in the final read for November to 52.6 from 52.2, which was already a seven-month high.

Who you gonna believe, right?

Drilling down in the ISM report, new orders fell to 47.2 from 49.1, employment dropped to 46.6 from 47.7, backlogs fell and new export orders sank too, dropping sharply from 50.4 into contraction at 47.9.

“Global trade remains the most significant cross-industry issue”, Timothy Fiore remarked. “Overall, sentiment this month is neutral regarding near-term growth”.

Someone should tell Donald Trump about the whole global trade being the “most significant” headwind across industries thing. The president on Monday fired another shot in the trade war, taking aim at Brazil and Argentina, in the process blaming manufacturing woes on the Fed.

The ISM miss is also disappointing in the context of better-than-expected PMIs out of China, a nascent rebound in Germany and signs of stabilization in Europe as a whole.

All in all, this is a bitter pill to swallow for those hoping to spot a bright light at the end of the proverbial tunnel.

The silver lining is that if this is indicative of what we can expect from ISM non-manufacturing and the November jobs report later this week, it may provide the Fed some cover if they want to put a dovish wrapper on the assumed December hold.

More from ISM

WHAT RESPONDENTS ARE SAYING

• “Business level is similar to October.” (Computer & Electronic Products)
• “Chemical industry has been slow globally, but the curve seems to be flattening.” (Chemical Products)
• “Economic uncertainty continues. Our outlook on future business is cautious, yet positive.” (Transportation Equipment)
• “Economy is holding up. Business is staying constant. The same challenges persist – foreign exchange, trade uncertainty and trend changes [for example, sugar reduction].” (Food, Beverage & Tobacco Products)
• “Slowdown in business has us revising our 2020-21 capital spend.” (Petroleum & Coal Products)
• “The order book continues to shrink below our forecast levels. We’re unsure at this point how much of the slowdown is tied to certain events [like the General Motors strike], year-end inventory reductions by customers, or a worsening economy. We don’t expect clarity on this until early 2020, when we expect to either see restocking orders [a good sign] or not [a bad sign].” (Fabricated Metal Products)
• “Demand has stabilized for the last half of [the fourth quarter], and production will be stable for the rest of this year.” (Machinery)
• “Heading into the holiday season, we are seeing the backlog decrease as new orders for 2020 seem lighter than in past years.” (Plastics & Rubber Products)
• “Markets have downshifted further. The continued confusion surrounding China trade has kept export markets on edge. Profits are elusive. Cash-flow planning is paramount. The general economy is slowing down.” (Wood Products)
• “Incoming orders and production have ticked back up. Tariffs are still a question.” (Furniture & Related Products)

MANUFACTURING AT A GLANCE
NOVEMBER 2019