ISM Manufacturing PMI to Rebound in September

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The Institute for Supply Management’s manufacturing PMI report for September is due later today. The closely watched gauge of manufacturing activity in the United States is forecast to show a rebound.

Economists polled forecast that the manufacturing index will rise to 50.4 in September. This marks a rebound in the index following the contraction in August.

The ISM’s prices paid is also forecast to ease to 45.8 from 46.0. This represents the sentiment regarding future inflation.

A lack of price pressures remains consistent with the general take on inflation. Consumer prices continue to remain sluggish.

US manufacturing activity fell below the 50-level on the index for the first time in three years. The manufacturing activity registered 49.1 in August.

As one of the leading indicators on the economy, investors closely watch the ISM’s performance. A decline in the industry potentially foretells a possible slowdown.

So far, the momentum in the manufacturing sector has been slowing quite a bit and culminated with the index falling to 49.1 a month ago.

The September manufacturing PMI report will be important as it potentially signals how the US economy grew in the third quarter. Current estimates show that the slowdown seen in the second quarter will extend into the third quarter as well.

Trade War Blamed for Weak Manufacturing

Many economists believe that the manufacturing sector is one of the first casualties of the trade war. The US and China have been in prolonged negotiations.

Currently, there are no signs of a resolution to the issue. President Trump also continues to flip-flop on his position while the markets continue to whipsaw to the ever-developing narrative.

Despite the above, the trade war has impacted growth in both the major economies. The US economy was once expanding at a pace of 3% and this has slowed to 2% as of the end of the second quarter.

It is the same story for China as well with growth slowing to the lowest levels in decades.

Regional surveys from the US, however, paint a rather mixed picture. The NY Fed’s Empire State Manufacturing index showed a decline to 2.0 in September from 4.8 in August.

It was a similar story for the Philly Fed manufacturing index. Regional manufacturing activity fell to 12.0 in September from 16.8, a month ago. The Richmond Fed manufacturing also slowed to -9 on the index from 1 in August.

It should be noted that the correlation between regional manufacturing and the ISM’s gauge is not that high. In August, despite most of the regional manufacturing index reports rising, the ISM’s gauge of activity fell.

IHS Markit’s Flash PMI Hints at a Rebound

In recent weeks, IHS Markit released the flash manufacturing PMI report for September. The early report showed that manufacturing activity in the United States rose to a five-month high.

The rebound in the flash PMI is driven by stronger new orders and rates of output. But there was also a caveat that despite the increase in September, the overall activity still remains weak since 2016. The flash PMI saw an increase in the index from 50.7 to 51.0.

But this comes amid weaker price pressures and indicates that the weakness in the manufacturing sector extended into the third quarter as well.

Various GDP trackers are showing that the US economy could fall below 2% growth rate in the three months ending September.

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