Yesterday we had the biggest monthly drop in the Chicago PMI since the Lehman collapse. Today, the Lehman bankruptcy is invoked again, after the critical ISM Manufacturing index plunges to 53.5, far below expectations of 57.1, and from 60.4 previously: this is the lowest number since September 2009. At this level of "growth" stall , the US economy will be in an official contraction (Sub 50) next month. From the report: "The PMI registered 53.5 percent and indicates expansion in the manufacturing sector for the 22nd consecutive month. This month's index, however, registered 6.9 percentage points below the April reading of 60.4 percent, and is the first reading below 60 percent for 2011, as well as the lowest PMI reported for the past 12 months. Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent, which is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs." Surprisingly, inventories declined from 53.6 to 48.7, refuting yesterday's PMI data. The only good news: Prices Paid dropped from 85.5 to 76.5. Too bad it is taking more than 15 minutes. Next up: Goldman to (i) lower NFP to 125,000 and (ii) H2 GDP to under 3%.
And a far scarier chart: the critical ISM New Orders less Inventories, which implies an ISM of under 45%
From the respondents:
- "Chemical prices are under increasing cost pressure, driven by feedstock and transportation costs." (Chemical Products)
- "Continued growth through beginning of second quarter, with strong backlog and outlook for at least the next three months." (Electrical Equipment, Appliances & Components)
- "Business levels remain strong — better than last year by 20+ percent, but not back to 2008 or early 2009 levels." (Fabricated Metal Products)
- "Demand remains strong; however, inflation is evident everywhere in virtually every material purchased." (Paper Products)
- "Bad weather is impacting retail business." (Printing & Related Support Activities)
- "Business is still strong, but we are more aware of a possible softening than previously." (Machinery)
And data at a glance:
|MANUFACTURING AT A GLANCE
|Customers' Inventories||39.5||40.5||-1.0||Too Low||Faster||26|
|Backlog of Orders||50.5||61.0||-10.5||Growing||Slower||5|
*Number of months moving in current direction.