US manufacturing gets reasonable

The levels reached by the manufacturing ISM during the summer were very difficult to explain, inconsistent with regional trends, not to mention the global trend. The 2.4 points September decline drove it back to where it should have been, so one should not worry too much. At 56.6, it remains comfortably above the 50-threshold

• The recent increase in the US manufacturing sentiment as measured by the ISM index was puzzling. In particular, regional surveys, especially form the New York and Philadelphia Feds, were pointing to a stabilisation, while the ISM was skyrocketing.

• The September development, a decline of 2.4 points to 56.6, is thus more a realigning than a bad surprise. As noted in last week Eco Week, we were indeed expecting this development, even though we were expecting it to be slightly more limited.

• As the production index was left unscarred by the September development, once should not worry about prospects for the US. However, this is not possible to note that further deterioration is to come.

• Indeed, the component for new orders recorded one of the most pronounced declines, down from 66.7 to 60.0, while new export orders were down from 55.0 to 53.5. This is indeed another reason why we were expecting deterioration in the US manufacturing sentiment. Such a global sector cannot be holding in one country when it is collapsing everywhere else.

• A more worrying development is in the backlog of orders, which component fell below the 50-threshold (separating expansion from contraction). This rather volatile component can send noisy information, but at 47.0, it reached its lowest level since early 2013, when the US economy began feeling from the adverse consequences of the increased payroll tax.

• A reason for comfort is that the level of inventories remains very low. As manufacturers will have to rebuild them, it will feed up production. Additionally, the ISM, as all PMI, greatly suffered from the crisis: they seem to have become poorer indicators.

• All in all, today’s data should not be over-weighed. The summer spike was very difficult to explain, while the September decline left the reading comfortably above the 50-threshold. This is just another reminder that one should be very careful when announcing that the US is en route for very solid growth rates, as well as when announcing a soon-to-come collapse…