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September 3, 2019 | US Manufacturing Recession Begins: ISM Contracts First Time in 3 Years

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
The manufacturing ISM dipped below the 50 mark signaling contraction. New orders, production, and employment are down.

The August 2019 Manufacturing ISM® Report On Business® shows New Orders, Production, and Employment Contracting.

New export orders fell 4.8 points to an anemic 43.3. Prices have fallen for three months.

The backlog of orders contracted for four months. Manufacturers cannot use backlogs to maintain employment. So unless there is a quick turnaround, more layoffs or reduced hours are right around the corner.

Markit PMI Confirms

Markit’s US Manufanucturing PMI, also released today, fell to the lowest in nearly a decade. It’s positive but barely.

Key Findings

  1. PMI at 50.3 in August (49.9 flash, 50.4 in July), lowest since September 2009
  2. Rates of output and new order growth remain subdued
  3. New export orders fall at quickest pace for 10 years
  4. The rate of production growth was among the slowest seen for over three years in August, as lacklustre client demand led increasing numbers of firms to curb output.
  5. The pace of the upturn in new business eased to a fractional rate that was the slowest for three months and among the weakest seen over the past ten years.
  6. Deteriorating demand conditions, especially across the automotive sector, were linked to subdued client demand.
  7. External demand also weighed on new business growth, as new export orders fell at the quickest pace since August 2009, linked by many firms to trade wars and tariffs.

Chris Williamson, Markit Chief Economist Comments

  • “The August PMI indicates that US manufacturers are enduring a torrid summer, with the main survey gauge down to its lowest since the depths of the financial crisis in 2009. Output and order book indices are both among the lowest seen for a decade, indicating that manufacturing is likely to have again acted as a significant drag on the economy in the third quarter, dampening GDP growth.”
  • “At current levels, the survey indicates that manufacturing production is falling at an annualized rate of approximately 3%.”
  • “Deteriorating exports are the key to the downturn, with new orders from foreign markets dropping at the fastest rate since 2009. Many companies blame slower global economic growth for weakened order books, but also point the finger at rising trade war tensions and tariffs.”
  • “Hiring has stalled as companies worry about the outlook: optimism about the year ahead is at its lowest since comparable data were first available in 2012. Similarly, price pressures are close to a three-year low, as crumbling demand has removed firms’ pricing power.”

Markit Eurozone Manufacturing PMI

The Markit Eurozone Manufacturing PMI® final data confirms the Eurozone manufacturing slump.

Key Points

  • Final Eurozone Manufacturing PMI at 47.0 in August (Flash: 47.0, July Final: 46.5)
  • Production and new orders continue to fall as confidence hits lowest since November 2012
  • Employment declines for fourth month running during August

Eurozone Countries

Germany, Italy, and Spain (the first, third, and fourth largest Eurozone economies) are all in contraction.

Global Manufacturing PMI

Global Manufacturing Recession

Markit’s Global Manufacturing PMI confirms the manufacturing recession.

Diffusion Indexes

As commented previously, these are diffusion indexes prone to interpretation problems. All that matters is direction. A company laying off 3 employees will offset another company hiring 200 employees.

However, all of the reports now say the same thing and it isn’t pretty.

Global Recession Coming

On August 2, I commented Global Manufacturing Recession Started: Trump’s China Tariffs Made Matters Worse

It is increasingly clear that is the correct view. But what about a real recession?

How Much Lead Time Do You Expect?

A global manufacturing recession was already underway. Today the US joined the party.

Once again please consider Manufacturing Recessions vs Real Recessions: How Much Lead Time Do You Expect?

For further discussion, please see Debunking the Myth “Consumer Spending is 67% of GDP”.

Also consider Major Supply Chain Disruptions Coming: Thank Trump.

Finally, please note Trump’s Trade War Takes Toll on South Korea and Japan.

Mike “Mish” Shedlock

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September 3rd, 2019

Posted In: Mish Talk

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