Industrial Recession Now Inevitable As Manufacturing ISM Worst In Six Years

Following China's disappointing drop in Manufacturing PMI overnight, this morning started off poorly with Canada's PMI crashing to its lowest reading since records began at 47.5. Then US Manufacturing PMI tumbled to 51.2 - its lowest print since October 2012 (with US factory orders collapsing to weakest since 2009). But The ISM Manufacturing crashed to 48.2 (deep in contraction) - the weakest level since June 2009, with employment bumping along at its lowest level since September 2009 and imports (reflecting domestic demand perhaps) crashed to levels only seen twice in 20 years.

The manufacturing recession is now inevitable: the only question is when and how it will spread to the service sector and be recognized by the NBER:

Charts: Bloonberg


Under the surface it was ugly:


And even ISM's Holcomb can't spin this positively:


Imports have utterly collapsed...


And while New orders "rose" on a seasonally-adjusted magical basis, the uadjusted series plunged to the lowest in over two years.


What the ever gloomier respondents are saying:

  • "Low oil prices are negatively impacting oil and gas exploration activities. Low oil prices are generally positive for the petrochemical industry." (Petroleum & Coal Products)
  • "Month-over-month sales were down, profitability up." (Chemical Products)
  • "December revenue is flat compared to last month." (Computer & Electronic Products)
  • "Still very slow due to oil prices." (Fabricated Metal Products)
  • "Deflation in many commodities is helping with product savings. Sales are strong with a backlog." (Transportation Equipment)
  • "Targeting reduced inventories for raw materials by year-end." (Textile Mills)
  • "Sales have dropped and continue to be soft. This is resulting in [a] reduction in workforce and furloughs." (Apparel, Leather & Allied Products)
  • "Medical device business continues to be strong, both in the U.S. and abroad." (Miscellaneous Manufacturing)
  • "Business is going well. Low fuel prices keep full size SUV and truck sales at high volumes." (Plastics & Rubber Products)
  • "Customers are tightening their inventories for year-end, impacting our sales and shipments." (Food, Beverage & Tobacco Products)

And then there was the Markit manufacturing ISM, which also confirmed the US manfucaturing recession, when it printed at 51.2, down from 51.3 in November, and the lowest print since October 2012!

As the report noted, "U.S. manufacturers ended the year by recording the weakest improvement in overall business conditions since October 2012. This was highlighted by a fall in the final seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) to 51.2, down from 52.8 in November. Although still above the neutral 50.0 threshold, the latest reading was much weaker than the survey average (54.2) and pointed to only a marginal upturn in operating conditions."

Markit also noted that a near-stagnation in new business volumes "was the main factor weighing on the headline index in December." Measured overall, new order levels expanded only fractionally and at the weakest pace since September 2009. Anecdotal evidence cited softer underlying demand conditions, intense competition for new work and subdued business confidence among clients. Export sales were also close to stagnation in December, with manufacturers noting that the strong dollar continued to act as a drag on demand from abroad.

However, just like with Yesterday's China's Markit chief economist commentary, it was the summary by Markit's Chris Williamson that was most dire. Commenting on the final PMI data, Williamson, chief economist at Markit said:

“The manufacturing sector saw a disappointing end to 2015, and its plight looks set to continue into the New Year as headwinds show no sign of abating any time soon.


Order book growth has stalled as producers report some of the toughest trading conditions since the end of the global financial crisis.


The strong dollar is hurting exporters as well as hitting domestic sales as firms compete against inflows of cheap imports. Low oil prices are meanwhile hitting demand for goods and machinery from the energy sector. There are signs that consumers are becoming more cautious in relation to spending as interest rates lift off their historic lows, and overseas demand remains in the doldrums. All of these factors look set to continue to hurt manufacturers, and even intensify, in coming months.


“However, with the Fed stressing that the trajectory of interest rates will be data dependent, any extended period of weakness at least suggests that the rate hiking process will be very gradual.”

In retrospect, Janet Yellen could not have picked a worse time to hike rates.