US manufacturing lull looks temporary

The US ISM manufacturing survey is weaker than expected with the headline index dropping to 54.2 from 56.6, relative to a consensus forecast of 55.8. This is the softest reading since November 2016 with the report showing all of the major components moving lower. However, it is important to point out that all of the key sub-indices remain above the key break-even level of 50. This means that there is expansion, just at a slower rate.

The US ISM manufacturing survey reading is the softest reading since November 2016

Nonetheless, this is quite a comedown from the 14-year high seen just six months ago and offers further support for the Federal Reserve’s decision to adopt a more cautious stance towards monetary policy. The ongoing concerns about trade protectionism and the impact on supply chains and costs probably aren’t helping.

However, worries about weaker Eurozone and China activity are seemingly affecting sentiment more than actual orders since export orders was one of the few components to actually see an improvement.