Submitted by Jeffrey Snider – Alhambra Investment Partners
The ISM for August was the lowest reading since the taper drama of 2013. At just 51.1, there isn’t any real basis for suggesting the manufacturing sector is even expanding (no matter what these sentiment surveys claim about that 50 dividing line). The “correct” interpretation is one which discards the exact figure for the relativism. For once, media commentary was in the ballpark:
Manufacturing in the U.S. expanded in August at the slowest pace since May 2013 as anemic demand from emerging markets such as China translated into leaner factory order books.
The Institute for Supply Management’s index fell to 51.1, lower than the Bloomberg survey median, from 52.7 in July, a report from the Tempe, Arizona-based group showed Tuesday. A measure of exports matched the weakest reading since April 2009.
“It raises a warning flag about the outlook,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “We’re going to have an inventory adjustment and, on top of that, weak exports are going to remain a weight. We’ll see a period of time when manufacturing is soft.”
With the direction for manufacturing established, what’s left is arguing about the degree of adjustment that is, in time, absolutely going to take place. The driving imbalance remains inventory which, in the context of sluggish and even contracting sales, suggests to me something far more than “soft.” And that view was formed even before the second “dollar” wave fully crested. I don’t think the sales imbalance from that is yet revealed, though the updates in manufacturing from the regional Fed surveys suggest it’s getting quite serious. Continue reading