The January ISM manufacturing index was much weaker than expected, with a fall from 56.5 in December to 51.3, the weakest in eight months. The consensus forecast was 56, while our call was 55.
We had expected a significant drop in the ISM index today, but the outcome was much weaker than even our forecast. Colder-than-normal weather in the US probably helped slow manufacturing activity last month, but comments from the Institute for Supply Management suggest that weather does not account for the entire slowdown in January.
Hence, the ISM survey implies more uncertainty about the near-term outlook, and we will obviously be looking for more evidence about the state of the union. If the weakness seen in today’s survey will be supported by hard data, this could put the Fed’s tapering plans on hold.
For now, however, we remain optimistic on the economic outlook.
Details
The breakdown of the ISM survey contained a negative forward-looking signal as the difference between the new orders index and the inventory index narrowed significantly, from 17.4 in December to 7.2, pointing to more near-term weakness.
The key forward-looking new orders index dropped to 51.2 from 64.4 the prior month.
The employment index fell from 55.8 to 52.3, supporting our call for below-consensus payroll growth (150k) in the employment report on Friday.
Nordea