Following disappointing prints in European PMIs and contraction in Brazil, US Manufacturing PMI also slipped to the lowest since February with optimism at the lowest since January; BUT ISM exploded to its highest since Feb.
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Manufacturing PMI dropped from 56.4 to 55.4 (4-month lows) but better than 54.6 expectation.
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ISM Manufacturing spiked from 58.7 to 60.2 (4-month highs) above all economists’ expectations.
Under the hood, it’s stagflation red flags as the PMI showed output growth slowing, new order growth at the weakest since Nov 17, but factory gate prices spiked at the second-fastest pace since June 2011.
For ISM, prices paid dropped very modestly from multi-decade highs and new orders slipped.
ISM’s Fiore notes that Factories “are overwhelmingly concerned” about Trump tariffs.
” The Section 232 steel tariffs are now impacting domestic steel prices and capacity. Base steel prices have already increased 20 percent since March.” (Fabricated Metal Products)
“U.S. tariff policy and lack of predictability, along with [the] threat of trade wars, [is a] causing general business instability and [is] drag on growth for investments.” (Electrical Equipment, Appliances & Components)
“The steel tariffs continue to drive uncertainty. Projects and services using steel have limited days that prices are good for. Trucking is tight, requiring advanced planning and increasing costs.” (Paper Products)
Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“The PMI for June rounds off the best quarter for manufacturing for almost four years, but also fires some warning shots about what lies ahead. As such, the second quarter could represent a peak in the production cycle.
“The survey has a good track record of accurately anticipating changes in the official manufacturing output data, and suggests the goods-producing sector is growing at an annualised rate of around 2.5%.
“On the downside, new orders inflows were the weakest for seven months, with rising domestic demand countered by a drop in export sales for the first time since July of last year.
“Business optimism about the year ahead also fell to the lowest since January, with survey respondents worried in particular about the potential impact of trade wars and tariffs.
“Tariffs were widely blamed on a further marked rise in input costs, and also linked to worsening supply chain delays – which hit the highest on record, exacerbating existing tight supply conditions.”
And as far as the global synchronous recovery narrative, that’s over…
Just this morning, Brazil joined Russia, Turkey, Malaysia, and South Korea in ‘contractionary’ sub-50 territory according to Markit’s PMI, as we additionally point out that South Korean exports fell 0.1% YoY in June…
Historically a big red flashing warning sign for US recession.
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