Bill Diviney, senior economist at ABN AMRO, notes that the US ISM manufacturing PMI fell to a 10-year low in September, and at 47.8, is now just above the 46.3 level registered in the last month of the 2008-9 recession.
Key Quotes
“The details were no less concerning, with the forward-looking new orders index stable at quite weak levels (47.3), while the employment index fell to 46.3 (from 47.4), suggesting a further slowing in manufacturing payrolls – the sector having already been responsible for the bulk of the decline in jobs growth in recent months (nonfarm payrolls gains have slowed from a monthly average of +223k in 2018, to +158k in the year to date).”
“New export orders paint an even gloomier picture – at 41.0, the index is lower than during the pre-2008 recession periods.”
“While the slowdown in manufacturing by itself will not push the US into a recession, we do expect the knock-on effects to drive a broader slowdown, primarily via lower jobs growth. We expect payrolls growth to slow further over the coming months, with the monthly average perhaps dipping below +100k in 2020.”
“Combined with continued sluggishness in investment (which the new orders index suggests if anything could intensify) and weaker government spending, we expect quarterly annualised GDP growth is slow to sub-trend rates of 1-1.5% by Q4 2019/Q1 2020.”
“We therefore expect 25bp cuts at both the October and December FOMC meetings, with the Fed pausing in 2020. OIS forwards meanwhile are pricing in one cut this year, and one cut in 2020.”
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