The manufacturing ISM showed a rebound in January whereas market expectations were looking for a marginal worsening. The headline index increased from 32.9, a 28-year low, to 35.6 due to a recovery in new orders (33.2 from 23.1) and production (32.1 from 26.3). Also backlog of orders (29.5 from 23.0) and new export orders (37.5 from 35.5) improved, while employment stayed unchanged at 29.9. Inventories and imports dropped slightly, while prices paid rose significantly (29.0 from 18.0). Although the index is still at very low levels, this improvement indicates that the pace of decline in production slowed in January, at least some positive development.
In December, personal income dropped by 0.2% M/M, less than the expected 0.4% M/M decline. The November figure was downwardly revised from -0.2% M/M to - 0.4% M/M. Personal spending came out weaker than expected falling by 1.0% M/M and the previous figure was downwardly revised from -0.6% M/M to -0.8% M/M. The combination of income and spending resulted in a rise of the savings rate to 3.6% from 2.8% previously. This illustrates that households are deleveraging following a decade long spending spree that was partly financed by asset inflation that in the mean term resulted in asset deflation. So the debt ratio has gone too high for households to be comfortable with. The PCE deflator dropped sharply from 1.4% Y/Y to 0.6% Y/Y and the savings rate rose from 2.8% M/M to 3.6% M/M. Personal spending showed it sixth consecutive monthly decline and is expected to drop further in the coming months which indicates that personal spending will continue to be a drag on economic growth during the first quarter of 2009.
Construction spending fell 1.4% M/M in December, following contractions of 1.2% M/M in the previous two months. These were sharply revised lower and suggest that Q4 GDP, initially reported at -3.8% will be revised somewhat lower upon revision.
Other: UK manufacturing PMI stabilizes in January
In the UK, manufacturing PMI showed an unexpected improvement in January. The headline index rose from 34.9 to 35.8 while the consensus was looking for an outcome of 34.5. Looking at the details, output (35.7 from 34.4), new orders (30.6 from 29.9) and new export orders (39.1 from 36.4) improved, but employment (33.5 from 33.9) deteriorated slightly. Both input and output prices rose in January. This is the second consecutive rise in UK manufacturing PMI which might indicate that the pace of decline in activity is moderating, but it is too early to conclude that conditions in the manufacturing sector have decisively turned positive.
