ISM Manufacturing PMI - Best Since May 2004

ISM Manufacturing PMI - Markit PMI Shows Moderation

The August Markit manufacturing report showed slight weakness. It was overshadowed by the remarkably strong ISM PMI report which I will review later in this article. As you can see from the chart below, the Markit PMI was 54.7 which was down from 55.3 in July. It beat estimates for 54.5.

As you can see, the Markit PMI has been the lowest in the grouping outside of one month in early 2018. The Markit PMI shows a sustained slowdown which both the ISM and regional Fed reports have not shown.

The ISM and regional Fed reports have been highly correlated outside of this past month as the regional Fed average fell and the ISM PMI rose sharply.

ISM Manufacturing PMI - The final Markit reading was slightly above the mid-month reading which was 54.5. 

Production growth was the slowest since November 2017. New orders slowed moderately. Backlogs and employment growth were strong, but slowed as well. Export sales increased. Business confidence increased to a 3 month high. Input costs and selling prices slowed and delivery times fell.

This all means capacity constraints eased. I’d rather see strength paired with inflation. At least we don’t have the worst case scenario which is inflation and slowing demand. Two thirds of firms who saw higher input costs blamed tariffs.

This report implies August factory orders will weaken. Manufacturing production growth could fall to 0.2% in Q3.

ISM Manufacturing PMI Explodes

I have been following the regional Fed reports to project the ISM report because they have been highly correlated. As I explained earlier, the correlation broke in the August report as the PMI came in at 61.3.

This beat the consensus for 57.7 and the highest estimate which was 58.1. It beat the July PMI which was 58.1.

As you can see from the chart below, this was the highest PMI since May 2004 and it’s very close to being the best PMI since 1984. Even though the PMI isn’t hard data, it is widely followed and effects investors’ view of where rates are going and where stocks are going.

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