ISM Manufacturing Posts Disastrous Miss For December In Blow To Reflation Narrative

On a day when stocks were on the back foot following a black swan geopolitical escalation in the Mideast, just about the last thing the market needed was a disappointing ISM manufacturing print.

The gauge had been in contraction for four consecutive months headed into the December number. The disconnect between ISM’s factory gauge and Markit’s manufacturing PMI had become glaring.

Unfortunately, ISM not only missed, but in fact missed “bigly”, printing a far worse-than-expected 47.2. That is the lowest since 2009 and an almost 2-handle miss to consensus, which was looking for 49.0 on the headline.

Just to drive the point home, 47.2 is below even the most pessimistic estimate from 60 economists polled by Bloomberg.

Production dropped to 43.2 from 49.1, the lowest since April of 2009. New orders slumped to 46.8, employment fell to 45.1 and new export orders slid to 47.3.

The gap between ISM and Markit’s gauges has now ballooned beyond 5 handles.

This would appear, at first blush anyway, to be a fresh blow to the reflation narrative and also serves to underscore the extent to which the factory slump and generalized sense of uncertainty created by the trade war did not abate in December despite the consummation of the “Phase One” trade deal.

It’s not necessarily a harbinger of doom, but it’s certainly not the best news – it suggests economic growth is running around 1.3% currently.

The timing – coming as it does amid a rare bout of risk-off sentiment – leaves something to be desired.

More details from the report

WHAT RESPONDENTS ARE SAYING

• “Backlog of orders is shrinking due to new order pace continuing to fall.” (Computer & Electronic Products)
• “Due to sluggish sales, we have introduced promotions to generate increased sales.” (Chemical Products)
• “Cautiously optimistic is the rule these days. Sales are decent, but we’re wondering what 2020 will bring. Still hedging that it will be successful – but maybe not as much as this year.” (Transportation Equipment)
• “Starting to see suppliers try to pass on costs associated with tariffs. Uncertainty on the trade front continues to keep agricultural markets on the defensive.” (Food, Beverage & Tobacco Products)
• “Down month-to-month, but up over last year.” (Miscellaneous Manufacturing)
• “Anticipated large export orders did not materialize. As a result, expected U.S. production has decreased.” (Fabricated Metal Products)
• “Dealer inventories have rebounded, and overall customer market has softened, resulting in corrections to near-term production schedules and a tentative forecast outlook.” (Machinery)
• “Export markets continue to weaken for plastic resins – Mexican producers are actually trying to sell product back into the U.S. due to weak in-country demand.” (Plastics & Rubber Products)
• “Our outlook for the first quarter of 2020 is positive. We have secured contracts from a number of former customers and expect sales growth of about 5 percent over Q4 of 2019.” (Textile Mills)
• “The construction market seems to have slowed for end of year. Overall, it’s marginally up.” (Nonmetallic Mineral Products)

MANUFACTURING AT A GLANCE
DECEMBER 2019