The April ISM manufacturing index dropped down to 54.8 from 57.2 in March and that was 1.7 pts below the estimate. It’s also the weakest print of the year but still is holding above its pre election October level of 52 and the year end December level of 54.5. It peaked post election at 57.7 in February. New orders fell sharply, down by 7 pts to 57.5, the lowest since November when it was at 54.8 but still 16 of 18 industries surveyed saw an increase. Backlogs held its recent spike, down just .5 pt after rising by .5 pt in March. Export orders were solid, up .5 pt to 59.5 and matches the highest since April 2011. We’ve seen many data points of improving trends in Europe and Asia and this merges well with that. Employment was a weak spot, falling 7 pts to 52 and that now has given back the entire post election gain as it printed 51.8 in October with 12 of 18 industries adding workers vs 14 in March. Inventories were mixed as they rose back above 50 at the manufacturer level while slid to the just 45.5, the lowest since July 2015 at the customer level (inventories were a big drag on Q1 GDP). Prices paid moderated by 2 pts but after rising by 2.5 pts last month. It stood at 54.4 in October.
Of the 18 industries surveyed, 16 saw growth vs 17 in March. The only industry to report a decline in business was not surprising: ‘apparel, leather and allied products.’
Bottom line, the Markit measure of US manufacturing tipped us off to weakness in the ISM when it printed the slowest pace of growth since September when it was reported on April 21st. The separation between confidence and actual data is now compressing with unfortunately the confidence numbers falling back to where the economic reality stands. Of note is that this week we’ll start seeing important April data where many have Q2 GDP forecasts between 3-4%. The Atlanta Fed will have its initial Q2 GDP estimate out today.
Markit said “the signs of slowing growth are most evident in the domestic consumer sector, but investment goods manufacturers continue to fare well, enjoying stronger capital equipment spending from the energy sector in particular.” I’m guessing the auto weakness was the main factor in the ‘domestic consumer sector’ and we did see a pick up in equipment spending in Q1 GDP.
Hopefully we’ll see some improvement overall in May as Markit said today in their updated release that a more upbeat picture came “about business conditions in the year ahead, suggesting firms are expecting order books continuing to improve in coming months.” They also saw a “more upbeat picture” in hiring which is in stark contrast to the ISM. I guess the truth lies somewhere in between.
US Construction Spending
Following the spending miss in March seen this morning, construction spending in March also missed the forecast by 6 tenths BUT, January and February were revised up sharply so we may see an add back in Q1 GDP estimates when taken all together. Notable, both residential and non residential construction saw nice upward revisions to January and February and were flat m/o/m in March. On a y/o/y basis, private construction was up 7%, a similar pace seen in February. One thing of course to keep in mind was the mild winter that likely was a key factor in goosing the first two months of the year.
In response to the all the data today, the 10 yr yield is unchanged at 2.28% but was at 2.30% right before the ISM miss. The ISM services number comes out on Wednesday. The dollar index is also trading lower to just shy of the weakest level since November.
Atlanta Fed GDP
Updated: 12:10 – The Atlanta Fed just posted its first Q2 GDP forecast and it is 4.3%. Let’s hope. For perspective, their first estimate for Q1 was 3.4%. It was 2.7% for Q4 that finished at 2.9% and it printed 2.1%. Q3 started at 3.6%, ended at 2.1% and we printed 3.5%. Bottom line, the Atlanta Fed estimate is just one of many but you at least have an idea of where they stand today.