With US economic data at its most disappointing in 18 months, it should not be surprising that Markit's US Manufacturing PMI plummeted to 53.0 in February - its lowest since August 2017. Under the hood in the PMI data, new orders tumbled to 52.7 (lowest since June 2017), and output slowed to its weakest since Sept 2017.
ISM's Manufacturing survey rebounded in January (like PMI) after December's plunge, and was expected to slide back modestly in February, but it didn't - it plunged back to cycle lows 54.2 - the lowest since Dec 2016.
As a reminder, the last time the ISM imploded two months ago, it was the catalyst that sent stocks plunging. So far, however, it has not had much of an impact on risk assets as the narrative now is that China can reflate the world.
Looking at the index, ISM Prices Paid contracted (49.4) for the second month in a row as new orders and employment stumbled.
The complaints by respondents largely focused on weak exports and trade, a function of the ongoing trade war with China, as well as the occasional weather lament:
- “Strong domestics market. Slow export markets.” (Paper Products)
- “Demand remains healthy at the beginning of 2019. However, growing concerns for what could be another round of tariffs in March are further escalating price increases of already constrained electronic components. Expect to see increased lead times and prices throughout Q1 and Q2.” (Computer & Electronic Products)
- “Strong start to the year, though weather has been a challenge.” (Chemical Products)
- “Still fairly steady with production and services.” (Transportation Equipment)
- “Economy showing general strength, especially in manufacturing. Cost pressures and tariff challenges persist but are manageable. General outlook is for stability and potential improvement in the second half of 2019.” (Food, Beverage & Tobacco Products)
- “Orders remain strong. Supplier delivery continues to be challenged on some commodities.” (Machinery)
- “Aerospace engine-related business continues to be strong. Energy and general industry-related business is flat to down.” (Miscellaneous Manufacturing)
- “Business so far this year is meeting, but not exceeding, our forecast. We are concerned about indicators showing a slight recession for the second half of the calendar year.” (Fabricated Metal Products)
- "Uncertainty of steel prices due to Section 232 tariffs on imported steel and lack of resolution of the anti-dumping trade cases.” (Petroleum & Coal Products)
- “General business conditions started to slow at the end of January, continuing through February.” (Plastics and Rubber Products)
For his part, not even IHS Chief Business Economist Chris Williamson sounded his usual upbeat self:
"The PMI indicates the US manufacturing sector is growing at its weakest rate for one and a half years, with firms reporting a marked easing in production growth in February, linked to a similar slowdown in order book growth.
“The survey exhibits a strong advance correlation with comparable official data, and suggests that factory production and orders growth rates are close to stalling mid-way through the first quarter, albeit in part representing some pay-back after a strong January. Export markets remained the principal drag on order books.
“Having seen demand grow faster than production through much of 2018, order book and output trends have come back into line in recent months, hinting at an alleviation of capacity constraints as demand cools. Backlogs of works barely rose as a result, and price pressures have likewise moderated, though tariffs were again reported to have pushed costs higher. Hiring has consequently also slowed.
“Worries regarding the impact of tariffs and trade wars, alongside wider poltical uncertainty, undermined business confidence, with expectations of future growth running at one of the most subdued levels seen for over two years and suggesting downside risks prevail for coming months."
Of course, this is just the kind of bad news the stock market will love - dismal US manufacturing means the Fed is on hold for even longer (and/or QE or rate-cuts imminent), which can only be great news for stocks, now that the market is back to trading the way it did under QE.