The market opened higher then slipped after Manufacturing ISM came in at 47.8 well below consensus to its lowest level since June 2009.  I’m not sure why the street was looking for an increase to 50.0 from 49.1 with thirty GM plans closed as a result of the worker strike and after yesterday’s disastrous Chicago PMI report.

Be that as it may the report saw almost every component shift deeper into contraction.

·         ISM fell to 47.8 from 49.1

·         Production fell to 47.3 from 49.5

·         New orders increased to 47.3 from 47.2

·         Order Backlog fell to 45.1 from 46.3

·         Inventories fell to 46.9 from 46.9

·         Customer Inventories increased to 45.5 from 44.9

·         Employment fell from 47.4 to 46.3

·         Export Orders fell to 41.0 from 43.3

·         Imports increased to 48.1 from 46.0

·         Prices Paid increased to 49.7 from 46.0

ISM Manufacturing

Manufacturing data in the United States has drifted for some time as global weakness has washed up deeper on our shores. 

Key Issues

• Trade War
• Strong Dollar

King Dollar

There has been debate for a long time about whether the US dollar can be too strong.  Strong dollar advocates say no country ever got rich with a weak currency and yet in a global economy where America is already disadvantaged by higher labor costs I think the dollar can get too strong.

The Dollar Index (DXY) is at its highest level since May 2017.  

DXY

What Does this Mean at Fed?

The ISM news sent President Trump to tweeter to complain about Jay Powell and the Federal Reserve allowing the dollar to get so strong.   He mentioned they are their own worst enemies and they don’t have a clue.

While I’m not a fan of public pounding of the Fed a lot of folks including myself wonder how they can keep getting it so wrong.

Consider Charles Evans Chicago Federal Reserve President and his shift from dove to moderate.  He spoke this morning in Germany discussing his mid-cycle adjustment which acknowledged the mistake the Fed made in December but suggested the adjustments are over.

 

On Mid-Cycle Adjustments ______________________________________________________________________________

Charles L. Evans President and Chief Executive Officer Federal Reserve Bank of Chicago

Global Interdependence Center (GIC) Central Banking Series Event Monetary and Economic Policies on Both Sides of the Atlantic Frankfurt, Germany October 1, 2019

 

It seems early to start use the term “mid-cycle adjustment” that sent the stock market in a tailspin when Evan’s and his colleagues keep suggesting decisions will be data-driven.

Moreover, if there is any Fed official that should be extra cautious and perhaps pushing for more rate cuts it should be the one sitting in the Midwest.  His district includes Illinois, Indiana, Iowa, Michigan and Wisconsin all hit hard by the General Motors strike (see map).

• 33 manufacturing plants
• 9 states
• 22 parts distribution warehouses

 

The ISM non-Manufacturing report has greater GDP implications but its intriguing we aren’t hearing much on bad news being good news and maybe it’s because the Fed might be too rigid.

I’m surprised the street is so surprised at the weak manufacturing data but there is intriguing action in many individual names.  This is another test to see if buyers materialize.

 

 

Comments

It all vjust solidifies the adage, "Economists are like weathrman when it comes to predictions." cjmcd on 10/1/2019 1:08:30 PM

The ISM data has been dropping for a year now so the present number isn't actually GM related. Brian Bigelow on 10/1/2019 1:39:18 PM

Thank fully the Fed will race to the rescue so markets don't seize up with a quarter point cut maybe by Christmas... Wouldn't want to rush it or be rash! Ray Weldon on 10/1/2019 1:44:46 PM

This eternal flat market is very frustrating. I'm beginning to think we may have another year like 18 on our hands. Do you have any indication otherwise? Noel (Steve) Cook on 10/1/2019 5:28:07 PM

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