Clouds Around US Manufacturing Darken

Bring out the recession predictions.

America’s marquee gauge of manufacturing activity deteriorated meaningfully in October, a development which was sure to garner all manner of attention from the macro bear crowd, even as it had the potential to relieve pressure at the long-end of the US Treasury curve, the locus of concern for many investors.

ISM manufacturing printed a sizable miss on Wednesday at just 46.7. Consensus wanted 49. The range of estimates, from nearly five-dozen economists, was 47.8 to 49.7. So, the actual print was below the most pessimistic guess.

It was the 12th consecutive month in contraction for ISM. So, the downturn in American manufacturing is now in its second year, apparently.

There weren’t many bright spots if there were any at all. New orders dropped to 45.5, down markedly from the prior month, and the employment gauge fell into contraction territory, diving all the way to 46.8 from 51.2.

ISM’s Timothy Fiore described ongoing order softness and tepid demand conditions. Only one of the six biggest industries (Food, Beverage & Tobacco Products) grew in October, he noted.

Meanwhile, the final read on S&P Global’s factory gauge for the US was a bit better, at 50, unchanged from the flash print. “October data signaled a stabilization of US manufacturing conditions amid a renewed rise in new order inflows and firmer output growth,” Sian Jones, an economist at S&P Global Market Intelligence, said. “Demand conditions reportedly showed signs of improvement as customer interest revived.”

As ever, there’s no use trying to reconcile any disparities between what can sometimes feel like competing messages from the two surveys. Suffice to say the market listens to S&P Global when the flash estimates are released, but defaults to ISM a week later.

ISM’s Fiore went on to say that the share of manufacturing sector GDP which logged a PMI calculation at or below 45 rose to 37% in October, sharply higher versus September and August. That metric, he reminded macro observers, is “a good barometer of overall manufacturing weakness.”

On the price front, ISM prices paid ticked up, but at 45.1, remained in contraction territory. S&P Global cited higher oil prices in flagging “sharper increases in costs and output charges.” Inflation, Jones remarked, has “regained some momentum in the sector.”


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