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Today’s data showed that the ISM manufacturing index dropped to 54.2 in February, the lowest level since 2016. According to analysts at Wells Fargo, the ISM index is clearly rolling over. They point out this has happened twice in this cycle without leading to a recession, but it does raise doubts about the manufacturing outlook.  

Key Quotes:  

“The employment component slipped 3.2 points to 52.3 in February, which may shrink expectations for next week’s jobs report. It also lets some of the wind out of the sails for manufacturing jobs, which increased 264K in 2018 as a whole.  

“Prices paid, a warning sign for future price trends, fell below the break-even 50 for the first time since 2016. Amid trade tensions, wholesale prices for finished goods have been rising at the fastest  pace in years; some relief here may be welcome.”

“It is difficult to remain sanguine about trade dynamics, though, amid the steep decline in ISM export orders. A year ago, this measure was at 62.8; today it is 10 points lower at 52.8.”