Widgets. They don’t make ’em like they used to. They don’t make ’em where they used to either.
US manufacturing activity contracted again in October, the last of this week’s US macro deluge showed.
46.5 on the ISM headline was a miss. Consensus wanted 47.6. Exactly no one expected a good read, but 46.5’s pretty rough. In fact, it’s the worst since July of 2023 and we’ve seen some bad readouts over that period.
As the figure reminds you, ISM spent substantially all of the past two years below the 50 demarcation line. The final read on S&P Global’s US factory PMI was 48.5. October thus marks the fourth straight month during which both gauges printed in contraction on the headline(s).
S&P Global’s Chris Williamson lamented “a disappointing start” to Q4 for America’s widget-makers. “[O]rder books continued to deteriorate at a worryingly steep pace, and a further build-up of unsold stock hints at further production cuts at factories in the coming months unless demand revives,” he went on.
For his part, ISM’s Tim Fiore blamed policy uncertainty, both on the fiscal and monetary side. “Demand remains subdued, as companies continue to show an unwillingness to invest in capital and inventory due to concerns about monetary policy direction in light of the fiscal policies proposed by both major parties,” he said.
The ISM anecdotes were mixed, but with a discernible bearish bent. Notably, the employment gauge barely rebounded, printing 44.4, up from September but abysmal all the same.
Worryingly, the prices paid gauge jumped to 54.8, way ahead of estimates, in expansion territory and up sharply month-on-month.
Put a lackluster print on the production index (46.2), an even more depressing read on the employment gauge and a surprisingly strong read on the prices metric together and what do you get? Stagflation!
Williamson said it’s not a lost cause, though. “Hurricanes have been blamed for supply disruptions, which should ease in November, and manufacturers are feeling more positive about the outlook than at any time since May, hoping that demand will pick up once the uncertainty generated by the Presidential Election clears,” he said Friday.
Hope may float. But it’s not a strategy.
I suspect we will see a bond rally later this week….
Looking at the S&P1500, if we separate the industries into “goods” vs “services”, I get that 40% of market cap is “goods” and 60% is “services”. I’m using “goods” broadly, basically any physical output from machinery to oil, pharmaceuticals to orange juice. Of course many of those goods are not made in the US, while almost all of the services are.