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Today’s data showed the ISM Manufacturing Index at 57.7 in October, down from 59.8. According to analysts from Wells Fargo, the reading is still strong but a sharp drop in new orders suggests a further slowdown may be in store.  

Key Quotes:  

“Activity in the manufacturing sector eased in October with the ISM index shedding 2.1 points. While at 57.7 the index signals output remains solid, the index has slipped below both its six- and 12-month averages. We highlighted in September that the euphoric, 60-ish readings of the summer were likely not sustainable, especially in a strong-dollar environment. Today’s report flashed additional signals that activity in the manufacturing sector is beginning to moderate from the impressive pace registered over the past year. Specifically, the new orders index posted the largest pullback over the month, falling 4.4 points to 57.4. That marks the first time in a year and a half that new orders have come in below 60.”

“The stronger dollar and slowdown in global trade may finally be coming to bear.”

“Despite having slowed a bit since the spring, input costs continue to rise at a rapid rate”

We see scope for the ISM manufacturing index to moderate further in the coming months. The dollar continued to climb through October and the lagged effect of currency fluctuations suggest it will remain a headwind in the months to come. At the same time, trade tensions show no sign of easing up. Uncertainty about the environment will likely be a deterrent for capital spending. While not tracked by the ISM, regional Federal Reserve purchasing managers indices report a noticeable slowdown in manufacturers’ capital spending plans since the start of the year, which suggests the industry itself is bracing for a slowdown.”