US ISM not encouraging for NFP - ING

James Knightley, Senior Economist at ING, points out that the weak reading in the sub-indices of the ISM manufacturing report suggest that there is a little prospect of a near-term rate hike from the Federal Reserve.

Key Quotes:

“US ISM manufacturing report for August is very disappointing with the headline index dropping to 49.4 from 52.6 – weaker than anyone in Bloomberg’s survey was predicting (consensus 52.0). This is also below the 50 break-even level and is the lowest reading since January.”

“The production and new order components were very soft, dropping 5.8 and 7.8 points respectively - both now lie in contraction territory. The employment component fell to 48.3 from 49.4, which is the worst reading since March. This is not particularly encouraging for tomorrow's payrolls report with the overall tone of the release offering little support for the idea of a near-term Fed rate hike.”

“There was broad based softness with just 33% of industries reporting growth in August, down from 61% in July and 72% in June. Just 33% had seen any increase in orders while only 28% had increased employment. This clearly hints at a poor outlook for the sector and raises worries for 3Q and 4Q GDP growth. If we are right and we get a sub consensus payrolls number tomorrow (ING predicts 150,000 versus the 180,000 consensus) this will further diminish the already fairly slim prospect of a September rate hike and would boost the arguments for a delay until 1Q17.”