US: Fall in ISM New Orders suggests slower investment growth in 2019 – ABN AMRO

“The ISM manufacturing PMI fell by 2.1 points to 57.7 in October, weaker than consensus (59.0) but closer to our forecast (58.5),” points out Bill Diviney, Senior Economist at ABN AMRO.

Key quotes

“While both Production and New Orders declined, Production remained relatively elevated at 59.9, while New Orders fell to the lowest level since April 2017 at 57.7. Historically, the ISM New Orders Index is a strong leading indicator for investment in the US, and the decline is consistent with our view that the strength we have seen in investment over the past two years is likely to ease in 2019 (the New Orders Index has the highest correlation with investment two quarters ahead).”

“The decline is also consistent with a sharp fall in the Conference Board’s CEO Confidence measure, which fell to 55 in Q3 from 63 in Q2 – the lowest reading since President Trump’s inauguration, and driven by concerns over trade policy and expectations of moderating growth in 2019.”

“All told, we expect growth to remain above potential over the next 2-3 quarters, supported by solid private consumption and the ramping up in government spending, but that a slowdown in investment will drive a cooling in momentum from the exceptionally high growth rates the US economy is currently experiencing. Looking further forward, we expect economic growth to eventually slow to sub-trend rates by the end of next year on the back of higher interest rates and the fading of fiscal stimulus.”