Signe Roed-Frederiksen
Danske Bank A/S
- The US manufacturing ISM for October declined to 50.1 from 50.2 (consensus expectations 50.0, Danske Bank 49.6) and the details of the survey was better than the headline.
- New orders increased to 52.9 from 50.1 which is the best level since July this year. Customer inventories, which is our preferred inventory measure in the survey, declined to 51.0 from 54.5 and the order-inventory differential took a rebound from the dip last month but remains depressed. The inventory index also showed a decline to 46.5 from 48.5 and overall suggest that the inventory correction evident in the Q3 GDP report continued into Q4 for the manufacturing sector.
- New export orders increased to 47.5 from 46.5 suggesting some stabilisation in global demand. The employment index softened to 47.6 from 50.5 and we have pencilled in a 11,000 drop in manufacturing employment for Friday’s non-farm payrolls report but stick to our estimate of 170,000 in overall job growth. The import index showed a major dive to 47.0 from 50.5 – the weakest level since June 2009. This stand in contrast to other data suggesting that domestic demand remains solid and it might be related to the drop in inventory accumulation.
- Our short term ISM model and the ‘new orders – customer inventories’ differential both suggest an ISM around the 50 level in the coming month, but we are likely past the bottom. A turn in the global manufacturing cycle in the coming months will bolster the Fed’s outlook for US growth above trend next year and we continue to believe that the first rate hike will come in January.
ISM chart book
New orders reboundOrder-inventory differential is looking better
Imports index weakest since 2009
Employment index declined further
ISM and manufacturing production
Our model suggest the ISM is bottoming
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