Economists say the details of the ISM manufacturing report in September were just as bad as the headline would suggest, as all major components contributed to pull the index down to its lowest level since October 2001.
Strategists at RDQ Economics said the release "screams that the economy is in recession," confirming what the weekly jobless claims survey has been reporting for several weeks now.
The U.S. manufacturing sector plummeted below market expectations in September, as a 6.4-point drop in the headline was the sharpest monthly decline since 1984.
Chief U.S. economist Ian Shepherdson from HFE said the "dramatic decline" was "unheralded" by regional reports and pushes the index into recession territory. "
urricanes over the past month account for at least some of the decline in the index, but surely not all of it," he added.
Paul Ashworth from Capital Economics said the report suggests the U.S. economy may be "slipping into a potentially severe recession." He added that as in 2001, the Fed could react to the poor ISM index by cutting interest rates.
An historic drop in the prices paid component only makes a Fed cut easier. Prices fell an extreme 23.5 points - the biggest monthly move ever - to 53.5, down from the previous month's 77.0. Back in June, prices were at a 29-year high of 91.5.
The economics team at ING said the tide is turning away from inflation and could help provide the impetus for some further easing from the FOMC. "The exact timing and extent of which will likely depend on market developments rather than macro data," they said.
Aside from prices, however, the details of the report were "simply awful," noted strategists from TD Securities.
New orders fell nearly 10 points to 38.8 from 48.3, marking the ninth straight month of slowdown, while production fell nearly 12 points to 40.8 from a previous 52.1 reading, halting four months of growth.
The ISM employment component fell to 41.8 from a previous 49.7 level, representing a turn from modest contraction to severe slowdown, and exports fell five points but managed to stay in growth mode in September at 52.0.
"The PMI (headline index) indicates a significantly faster rate of decline in manufacturing during September, marking a departure from the 2008 trend toward negligible growth or contraction each month," said Norbert J. Ore, chairman of the ISM Survey Committee.
Looking ahead, TD's Millan Mulraine said the manufacturing sector will "likely remain subdued in the coming months," in contrast to relatively strong growth in the first half of the year.
By Patrick McGee and edited by Nancy Girgis
©CEP News Ltd. 2008
