Quite a bit is riding on the evolution of US PMIs going forward, according to one widely-followed Wall Street strategist.
Morgan Stanley’s Mike Wilson expects survey data to show a deceleration in US economic activity going forward, which could weigh on equities, especially if long-end US yields remain “sticky” (higher).
It’s with that in mind — and against a backdrop where some worry the Fed is destined to tighten into a burgeoning slowdown — that ISM manufacturing printed an in-line 57.6 for January. The range, from five-dozen economists, was 55 to 59.7.
Earlier Tuesday, the final read on IHS Markit’s factory gauge for the US in January showed a slight upward revision versus the flash print. Both the ISM survey and the Markit gauge are the lowest in more than a year (figure above). The ISM figures included revisions.
Under the hood, ISM’s gauges of production and new orders retreated, albeit to levels still consistent with a reasonably robust expansion. The employment index moved up to the highest in 10 months. Prices paid rose fairly sharply.
January’s headline print is indicative of a 3.1% annualized pace of growth, ISM’s Timothy Fiore remarked. Distortions abound and Omicron had an impact, but Fiore noted that even as US manufacturing remains mired in a “demand-driven, supply chain-constrained environment… January was the third straight month with indications of improvements in labor resources and supplier delivery performance.”
Panelists were overwhelmingly optimistic, but Fiore was careful to flag “shortages of critical intermediate materials, difficulties in transporting products and lack of direct labor on factory floors due to… Omicron.”
IHS Markit described operating conditions as “relatively subdued.” Like Fiore, chief business economist Chris Williamson cited optimism among manufacturers, even as current conditions are challenging.
“The Omicron outbreak has hit manufacturing hard, exacerbating existing headwinds by subduing demand, creating further supply chain issues and causing widespread staff shortages, often through absenteeism due to the surge in COVID-19 infections,” Williamson said Tuesday. “The steep downturn in the survey data are indicative of manufacturing production falling in January.”
That said, indicators of output expectations suggest last month’s slowdown “may prove short-lived.”
In other words, it’s transitory.
lol transitory