"Growth Has Stopped": Manufacturing ISM Crashes Most Since The Financial Crisis

Yesterday, when Markit reported that the US manufacturing PMI tumbled to a 15 month low, we were wondering how much longer the "other" PMI can continue to defy gravity by printing ridiculously high numbers month after month. The answer, it turns out, was about 24 hours, because moments ago the Institute for Supply Management reported that the December ISM plunged from 59.3 to 54.1 - precisely where the PMI print suggested it should - which was the lowest print in the Mfg ISM series since November 2016...

... and the biggest one month drop going back to the financial crisis, when in October 2008 it dropped by 9 points.

Printing just days after both Chinese manufacturing surveys printed in contraction territory, spooking markets, today's ISM report was a disaster with virtually every subindex tumbling:

  • New orders fell to 51.1 vs 62.1
  • Employment fell to 56.2 vs 58.4
  • Supplier deliveries fell to 57.5 vs 62.5
  • Inventories fell to 51.2 vs 52.9
  • Customer inventories rose to 41.7 vs 41.5
  • Prices paid fell to 54.9 vs 60.7
  • Backlog of orders fell to 50.0 vs 56.4
  • New export orders rose to 52.8 vs 52.2
  • Imports fell to 52.7 vs 53.6

And in table format.

That said, in light of the reported plunge in customer inventories, we are very skeptical this report is accurate in light of reports such as this one which we noted over the weekend, that "Overflowing With Excess Inventory, US Companies Turn To Truck Trailers."

In other words, the entire supply chain is now cho(ke)-full of excess inventory, and margin-crushing liquidation is coming. And confirming that was another key ISM series, namely the New Orders less Inventories which tends to hit 0 every time there is far too much inventory in the supply chain.

Fake data or not, the respondents were clearly concerned:

  • “Growth appears to have stopped. Resources still focused on re-sourcing for U.S. tariff mitigation out of China.” (Computer & Electronic Products)
  • “Customer demand continues to decrease [due to] concerns about the economy and tariffs.” (Transportation Equipment)
  • “Starting to see more and more inflationary increases for raw materials. Also, suppliers [are] forcing price increases due to tariffs.” (Food, Beverage & Tobacco Products)
  • “The ongoing open issues with tariffs between U.S. and China are causing longer-term concerns about costs and sourcing strategies for our manufacturing operations. We were anticipating more clarity [regarding] tariffs at the end of 2018.” (Machinery)
  • “Business is steady, but pace of incoming orders are slowing.” (Furniture & Related Products)
  • “Caution seems to be the outlook. Are we in a correction, or is the market getting ready to slow over time?” (Fabricated Metal Products)
  • “No major change in business operations towards the end of 2018; however, we are carefully monitoring oil prices and outside influence from market conditions to better understand our 2019 outlook and capital plans.” (Petroleum & Coal Products)
  • “Customers are hedge buying in December as a result of announced price increases starting in January.” (Textile Mills)

The report, the latest confirmation of US economic slowdown, has started stocks with the Dow now more than 500 points lower.

Finally, as we observed yesterday, 2018 marked the first time that Citigroup's global economic surprise index finished a year below zero since 2008, and today's abysmal ISM print will drag it even lower.

The consistency with which global data is trailing estimates makes consensus forecasts for U.S. GDP for 2019 that have barely budged from their high of 2.6% highly laughable.