The first of this week’s top-tier US macro data came up short.
A month on from a downside surprise that acted as the first domino in a chain reaction which culminated two sessions later in history’s largest intraday VIX spike, ISM manufacturing missed again, printing 47.2 in the update covering August. Consensus wanted 47.5.
Although the headline technically counted as “better” than July’s, there wasn’t much good about the release. Do note: The ISM headline has only been above the 50 demarcation line one time in 22 months. So, American manufacturing’s stuck in a nearly two-year-old “recession.”
The final read on S&P Global’s US factory PMI for August was 47.9. That was down a smidge from the flash read and marked a second month in contraction.
“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter,” S&P Global’s Chris Williamson said, cautioning that the drag “could intensify in the coming months” based on the survey’s forward-looking metrics.
The ISM employment gauge at least managed to print better than July’s 43.4. It was that print — more so than the headline — which spooked markets last month. August’s 46 reading was an improvement but doesn’t count as good by any stretch.
The rest of the ISM subindexes were poor as well. At just 44.6, the new orders gauge was the lowest since May of 2023. The production index printed a likewise recessionary 44.8.
“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty,” Tim Fiore remarked.
If there was a silver lining, it was an improvement in the breadth of the manufacturing contraction. Fiore provides an update on two metrics in that regard, one of which is the share of manufacturing GDP registering a PMI at or below 45. That share was 33% in August, down 20ppt from July. If you’re a glass half-full type, you can latch onto that.
Markets won’t parse the nuance, though. They’ll just trade the Bloomberg all-caps headlines showing 40-handle prints across pretty much every key subindex except for the price gauge, which rose to 54 from 52.9.
S&P Global’s Williamson painted a somewhat dire picture. “Slower than expected sales are causing warehouses to fill with unsold stock, and a dearth of new orders has prompted factories to cut production for the first time since January,” he said Tuesday. “Producers are also reducing payroll numbers for the first time this year and buying fewer inputs amid concerns about excess capacity.”
I’d gently note that none of that’s consistent with the Biden administration’s manufacturing renaissance narrative. Fortunately for Democrats, Donald Trump’s too busy selling superhero NFTs, dog whistling to the base and talking up his plans for a crypto utopia to be bothered with James Carville’s maxim.
