ISM Manufacturing PMI Misses and Teaches Us a Lesson

Alan Penny

2 December 2019

3 min read

dollar bills and pennies

  • ISM Manufacturing misses expectation
  • Global slowdown felt in the US?
  • Stock markets will forget soon

The ISM Manufacturing PMI figure in the United States came out on Monday morning, at 48.1, lower than the expected 49.2 for the month. That being said, it looks as if the manufacturing sector in the United States is starting to slow down a bit, approaching European levels. That isn’t a good sign, however, manufacturing isn’t as crucial a sector in the United States as it is in other parts of the world. After all, 70% of the United States economy is based upon consumerism.

One of the biggest issues that one will run into as a new trader is a belief that only monetary flow matters. Remember, stock markets don’t do what they are supposed to do, but rather what they choose to do. As traders around the world continue to enjoy next to free money, they continue to buy assets and massive amounts of corporate buybacks in the stock markets. Ultimately, the state of manufacturing will probably be a more or less short-term event that will be forgotten about relatively soon.

The number disappointed

The ISM Manufacturing Purchasing Managers Index figure measures a survey of purchasing managers in the manufacturing industry around the United States. Coming in at 48.1 as opposed to the 49.2 level expected, suggests that perhaps managers around the United States are pulling back a bit and it signals that the global economy is starting to be felt in the US.

the United States still looks better than most other economies, but this is another crack in the ice

If that’s going to be the case, it is very likely that the market will continue to digest the idea of a slowing economy. Ultimately, the United States still looks better than most other economies, but this is another crack in the ice so to speak.

The reaction

The reaction was very negative initially, as algorithmic traders jumped in and started going insane. This is a very common event though, and it’s difficult to imagine that this will be a longer-term selloff. Central bank policy will continue to support the markets, and honestly: stock markets have not traded on fundamentals for at least a decade.

They are trading on whether or not the Federal Reserve is going to loosen monetary policy, tighten it, or sit still. Currently, the Federal Reserve has expressed its desire to sit still but has also suggested that they are willing to cut rates if necessary.

Ultimately, this will probably be more of a “blip on the radar”, as the market has shown extraordinarily resilient behavior to the upside. Even if these circumstances were to break down, the reality is that there are several levels underneath that will continue to show support for assets. This is also going to be a buying opportunity more than likely through stock markets and the like, similar to those that have been seen time and time again over the last several years.

Written By
Alan Penny

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