ISM Non-Manufacturing Comes Out Soft in the United States

Alan Penny

3 October 2019

2 min read

many US flags in a field

  • ISM Non-Manufacturing Index misses on Thursday
  • Concerns of global slowdown coming to US
  • Yields fall

The ISM Non-Manufacturing PMI figure came out lower than anticipated, reaching the 52.6 level. Expected to be 51.1, this is a significant miss, as it shows that perhaps the service sector in the United States is starting to feel the pinch. There are now concerns as to whether or not the United States can avoid some of the softness that the world has seen.

Expected to be 51.1, this is a significant miss

Global slowdown

The concern is that there could be a bit of a global slowdown. We are starting to see signs of weakness in the numbers from Germany, Japan, and most ominously China. If the US were to join the rest of these economies in slowing down, that would be the last nail in the coffin. The global economy has been rather weak and tepid to say the least, but traders have been throwing money at the United States in order to avoid a lot of the issues in other stalwarts, such as Germany.

At this point, the US consumer is the main reason there is growth at all in most places. If the non-manufacturing sector of the US economy is starting to slow down just as manufacturing is, then it seems very likely that recession will come to the US.

Market reaction

The initial reaction was for bonds to get a bid, driving yields down. The euro gained slightly against the US dollar, but there is a good chance it will now roll right back over. After all, Europe has much more significant problems than the United States, but US weakness is something that cannot be ignored. The Japanese yen got a bit of a boost, as one would expect with the stock markets taking an initial punch in the gut. Gold also rallied almost immediately but stabilized shortly after.

Waiting for jobs

The market is most certainly waiting for the jobs number to come out on Friday, which will be yet another look at how the US economy is behaving. The final frontier will be whether or not the jobs market is holding up, because there will be no consumers if the jobs number struggles. Employment will be even more crucial with regard to market participants’ expectations of the Federal Reserve going forward. So while the ISM numbers are negative, the jobs number will be even more important this week. By the close of business on Friday, we should have a better picture of whether or not the United States is holding up in the face of global headwinds.

One would think that the Federal Reserve is likely to step in and try to boost the stock markets, but that also has a knock-on effect on the currency markets, weakening the greenback. At this point, the next 24 hours will be crucial after yet another missed figure.

Written By
Alan Penny

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