Data released on Monday showed the ISM manufacturing index rose to 59.3 in October surpassing expectations. Analysts at Wells Fargo, see that the pace is unlikely to be sustained as COVID cases mount and fiscal support is fading.
Key Quotes:
“The increase blew past expectations and marked the highest reading since 2018, before the trade war began and when the factory sector was coming off the euphoria of tax cuts and a rebound in global growth.”
“Driving the impressive showing this time around has been the unique dynamics of COVID, which has favored goods spending over services and been propelled by sizable fiscal support.”
“The fiscal support that has helped to underpin the swift recovery in goods spending has faded. With another round of stimulus unlikely to come until at least late January, the boost from government support is going to be absent at least for a few months. Moreover, the surge in COVID cases not just in the United States, but globally, raises uncertainty about the outlook and may contribute to further retrenchment in business investment, even though other countries showed a manufacturing resurgence in October, with purchasing manager surveys rising in Europe and China as well.”
“Our base case remains manufacturing activity will continue to expand in the coming months, but the pace will almost certainly be less impressive than in prior months as the rebound effect fades.”
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