ISM August Manufacturing PMI 47.2
Below Market Expectations... Contraction for 5 Consecutive Months
The U.S. manufacturing sector has continued to contract for five consecutive months. This is a result of low investment intentions among companies due to monetary policy and election uncertainties. As concerns about an economic downturn are reignited by weak manufacturing indicators, the New York Stock Exchange is extending its losses.
On the 3rd (local time), the Institute for Supply Management (ISM) announced that the August Manufacturing Purchasing Managers' Index (PMI) stood at 47.2. Although this was an increase from 46.8 in the previous month, it fell short of the expert forecast of 47.5.
The manufacturing PMI, a representative leading economic indicator, signals expansion when above 50 and contraction when below 50. Thus, the ISM manufacturing PMI has remained below 50 for five consecutive months, indicating a continued contraction phase in the manufacturing sector, which accounts for 10.3% of the U.S. economy.
Manufacturing employment improved, but factory operations remained sluggish. The manufacturing new orders index, a sub-index of the manufacturing PMI, dropped from 47.4 in July to 44.6 in August. The manufacturing production index also declined from 45.9 to 44.8 during the same period. Conversely, manufacturing employment rose from 43.4 to 46.
Timothy Fiore, chairman of the ISM Manufacturing Survey Committee, stated, "U.S. manufacturing activity is still in a contraction phase, but the pace of contraction has slowed compared to last month." He analyzed, "Due to current monetary policy and election uncertainties, companies are unwilling to invest in capital and inventory, so demand remains suppressed."
On the same day, S&P Global also reported that the August manufacturing PMI remained in contraction. S&P Global's August manufacturing PMI recorded 47.9, falling short of both the previous month’s 49.6 and the forecast of 48.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, diagnosed, "The further slowdown in PMI indicates that the manufacturing sector is becoming a bigger obstacle to economic growth in mid-third quarter. This leading economic indicator suggests that this burden may intensify over the coming months."
Concerns about economic slowdown have reignited due to weak U.S. manufacturing indicators, causing the New York Stock Exchange to plunge. As of 3:03 p.m. on the first trading day of September, the Dow Jones Industrial Average was down 1.5% from the previous trading day, while the S&P 500 and Nasdaq indices plunged 1.99% and 3.04%, respectively.
Expectations for a 'big cut' (0.5 percentage point interest rate cut) in September have slightly increased. Currently, the interest rate futures market reflects a 63% chance that the Federal Reserve (Fed) will cut rates by 0.25 percentage points in September and a 37% chance of a 0.5 percentage point cut. The big cut expectation rose slightly from 35% earlier that morning.
Government bond yields are declining. The U.S. 10-year Treasury yield, a global bond yield benchmark, fell 7 basis points (1bp = 0.01 percentage points) from the previous trading day to 3.83%, while the 2-year Treasury yield dropped 3 basis points to 3.89%.
Larry Tentarelli, Senior Technical Strategist at Blue Chip Trend Report, pointed out, "The market is currently overreacting to every incoming data point," adding, "The market has become highly data-dependent."
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