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US: Manufacturing PMI drops to lowest level since 2001

Thu, Oct 2 2008, 08:15 GMT
by KBC Market Research Desk

KBC Bank

Manufacturing ISM plunged to 43.5 in September after staying broadly unchanged in the four months before. Production (40.8 from 52.1), new orders (38.8 from 48.3), new export orders (52.0 from 57.0) and employment (41.8 from 49.7), which are the important sub-indices; plunged extremely sharply. But also backlog of orders (35.0 from 43.5), inventories (43.4 from 49.3) and imports (44.0 from 48.5) showed major declines. Prices paid dropped to 53.5 in September after reaching sky-high levels in June. The headline figure has now reached its lowest level since the crisis of 2001, raising fears that the US economy is in recession, which will again start to put more pressure on the Fed to cut rates.

The ADP labour report showed employment falling by 8 000 in September, while the consensus was looking for a decline of 50 000. Last month’s figure was downwardly revised from -33 000 to -37 000. Looking at the details, employment rose in the service providing sector (64 000) and in small businesses (28 000), while in the goods-producing sector (-72 000) and in medium size businesses (-30 000) employment declined. Construction employment dropped another 29 000 which brings the total decline in construction jobs since the peak in August 2006 to 409 000. Employment in financial activities advanced 4 000. It might be important to note that the strike of some 37 000 machinists against Boeing and job losses related to the hurricanes are not included. Assuming that government payrolls rise of about 10 000 in September, the payrolls would report a rise of 2 000, while the consensus estimate is at -105 000. But recently, the ADP report showed consistently better results than the payrolls and given also the weakness in the ISM and claims amongst others, payrolls might indeed be a good deal weaker than the ADP. .

EMU: Unemployment rate rises to 7.5%

Euro zone September Manufacturing PMI was slightly downwardly revised from 45.3 to 45.0. Both output (44.1 from 44.8) and new orders (41.7 from 42.5) were downwardly revised, while employment (47.0 from 46.6) came out higher. Prices were downwardly revised.

The euro zone unemployment rate came out at 7.5% in August, while the consensus was looking for a figure of 7.3%. The July unemployment rate was upwardly revised from 7.3% to 7.4%. Unemployment rose in France (8.0% from 7.8%), Ireland (6.2% from 5.9%) and Spain (11.3% from 11.0%), while a decline was reported in Germany (7.2% from 7.3%). Rising unemployment in Spain and Ireland is no surprise, due to the extreme weakness in the housing market that has infected the overall economy..

Other: UK Manufacturing PMI deteriorates sharply

In the UK, Manufacturing PMI plunged from a downwardly revised 45.3 in August to 41.0 in September, while the consensus was looking for a more modest decline. The underlying picture is very weak with output (41.2 from 47.6) and new orders (36.1 from 41.9) deteriorating sharply, but also new export orders and employment worsened. Both output prices (62.6 from 64.5) and input prices (73.7 from 78.1) came out lower. This weakest figure since series began in 1992 raises fears that the UK is fast heading for recession.

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Published on  Thu, Oct 2 2008, 08:22 GMT