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ISM Manufacturing Index continues to contract

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The October ISM Manufacturing Index continued to contract in October, though it improved to 48.3 from September’s reading of 47.8, implying a modestly slower pace of contraction in domestic manufacturing sentiment.

The forward-looking new orders index improved to 49.1 from 47.3. Both are in line with our RSM Manufacturing Outlook Index, which stands at .812 standard deviations below neutral and implies that the domestic manufacturing sector remains in recession.

In our estimation, the lagging impact of monetary policy in the United States and the strong probability of accommodative policy out of Europe, China and Japan in early 2020 will set the stage for a modest rebound in global manufacturing. We expect the direction of domestic manufacturing to remain flat to modestly negative going forward into the end of 2019 and early 2020.

A look at the data and ISM commentary implies that global trade remains the most significant cross-industry issue. Food, beverage and tobacco products are the strongest industries, while and transportation and equipment are the weakest. Of the 18 industries only five report growth, with 12 industries reporting contraction and one showing no change, which underscores our estimation that the domestic manufacturing ecosystem remains in recession.

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About Joseph Brusuelas

@JoeBrusuelas

Joseph Brusuelas provides macroeconomic perspective to help RSM clients anticipate and address the unique issues and challenges facing their businesses and the industries in which they operate. In 2015, he helped launch The Real Economy, the only monthly economic report focused on the middle market, and helps lead the firm’s cutting-edge Industry Eminence Program.

Prior to joining RSM as chief economist, Joe was a senior economist at Bloomberg, LP and the Bloomberg Briefs newsletter group. During that time, he was named one of the 26 economists to follow by the Huffington Post. Joe has over 20 years of experience in finance and economics, with emphasis on analyzing U.S. monetary policy, labor markets, fiscal policy, economic indicators and the condition of the U.S. consumer.

In addition to being a frequent author for RSM and media, Joe Brusuelas is the co-author of Forex Analysis and Trading: Effective Top-Down Strategies Combining Fundamental, Position, and Technical Analyses.