ISM Non-Manufacturing PMI Disappoints

Alan Penny

4 December 2019

3 min read

dollar notes under US flag

  • ISM Non-Manufacturing PMI lower than anticipated
  • Wall Street will look to the Fed
  • Soft data can mislead à la Donald Trump and Brexit

During the trading session on Wednesday, the United States released the ISM Non-Manufacturing PMI figures, which were lower than anticipated. The 53.9 reading was lower than the anticipated 54.5 reading, which suggests that perhaps the economy isn’t humming along as strong as previously believed. This figure is a leading indicator of economic health, as businesses tend to react very quickly to market conditions.

If they are more likely to spend, then that means they are more confident about the overall economy.

Purchasing managers are surveyed as to what they think about the economy, and whether or not they plan on spending more on supplier deliveries, inventories, production, employment, and other such new orders. The idea is that the stronger the number, the more likely they are to spend. If they are more likely to spend, then that means they are more confident about the overall economy.

Wall Street will look to the Fed

It has been made rather obvious as of late that the Federal Reserve is staying on the sidelines and not stepping into the interest-rate game. In other words, they will not be raising rates anytime soon. Wall Street will look to the Federal Reserve for safety, as the ISM Manufacturing PMI figures on Monday also disappointed, coming in at 48.1 instead of the expected 49.2 for the month.

Wall Street traders out there will be looking to the Federal Reserve for signs of having the proclivity to support the markets. They have most certainly done that for the last decade, and now that the Federal Reserve has walked away from the tightening cycle, this is a number that will probably be somewhat overlooked. A lot of traders are suggesting that perhaps this is a “slight bump” in the economy.

This is soft data

Remember, this is so-called soft data. Furthermore, keep in mind that soft data can be very misleading at times, because it’s a survey, and surveys aren’t necessarily reliable. If that is the case, there would not have been shocks like the Donald Trump election, Brexit, and so on. Soft data at least gives insight into what people are thinking, and that does have a certain amount of importance.

Furthermore, you should also keep in mind that although both of these ISM figures have disappointed this week, they haven’t been horrific numbers, and they are both still suggesting that the United States economy is in expansion.

It’s not as if we have dropped below the 50 level, which shows contraction. It’s very likely that the US stock market will continue to go forward and be one of the favored economies around the world for traders.

Even if this soft data comes out negative, Wall Street has learned that if they fall apart too quickly, the Federal Reserve will step in and pick things back up via quantitative easing, repo operations, and of course interest-rate cuts.

Written By
Alan Penny

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