ISM Manufacturing Hits New Cycle Lows

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Manufacturing Hit Again

The August US ISM manufacturing data once again highlighted the ongoing damage from the US-China trade war.

The index fell into contractionary territory for the first time since 2016.

Following up on this, the September ISM report, released yesterday, added further cause for concern.

At just 47.8 over the month, the ISM manufacturing index is now at a new cycle low. It has fallen below even the level seen during the 2015 – 2016 slowdown.

Only 1 Component Not in Contractionary Territory

Despite better tone communications between the US and China over the month, including a raft of concessions and talk of a potential deal, it seems the damage has already been done.

Each subcomponent in the survey is reportedly in contractionary territory. The one exception to this was supplier delivery times. However, even this was growing more slowly than expected.

Export Orders Down

Looking at the breakdown of the data, the production component of the index slid further into contractionary territory, along with inventories. This suggests that slower stock levels will likely be a drag on GDP this quarter.

Hiring in manufacturing also contracted at a faster pace than expected. This furthered the trend of moderation in private payroll growth.

Given that the backlogs of orders have shrunk for a fifth straight month now, reductions in hiring are not a surprise.

Elsewhere, the data showed that the new orders component was little changed at 47.3 from 47.2 last time. However, with export orders at a new cycle low, it seems that the negative effects of the ongoing trade war and a stronger dollar, are being clearly felt.

While the ISM Manufacturing report was decidedly bearish for the US economy, other PMI sets fared a little better.

The regional Fed manufacturing surveys rose 1.8%. Meanwhile, the September Markit manufacturing survey showed activity firming again back above the 50 level.

However, in line with the ongoing slowdown in global growth and trade war, manufacturing is likely to remain subdued.

ISM Non-Manufacturing Up Next

The drop in the manufacturing index is a clear marker for how the US economy is responding to ongoing trade tensions with China.

However, at just 12% of output and accounting for just 8.5% of employment, the more important reading to watch will be Thursday’s ISM Non-Manufacturing report.

Despite the fall back in manufacturing, the non-manufacturing report held up reasonably well in August. If this reading can maintain above the 50 level in September, that would point more towards a slowdown in the economy instead of a full-blown recession.

However, any downside surprise on Thursday could be heavily bearish for the US economy.

Technical Perspective


The latest data weakness in the US has hit risk sentiment today. The SPX500 is falling back further to trade 2925.63 last, testing the zone of support around the broken 2931.22 highs.

If price can hold back above this level, we could still see some further higher. While below here, focus will be on a test of the rising trend line from 2018 lows next, ahead of structural support at the 2878.17 level.


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