02.05.2017 - ISM index declines noticeably in April

 

non-periodical

The Institute for Supply Management (ISM) announced yesterday that the National Purchasing Managers' Index for the manufacturing sector declined by 2.4 to 54.8 points in April. Both our own estimate and the consensus estimate had been 56.5 points.

Market reaction: The markets hardly reacted to the data at all.

Our assessment: The decline of the ISM index was surprising only with regard to its extent, given that the available regional sentiment surveys in the manufacturing sector had suggested a less pronounced minus. The assessment regarding incoming orders and employment prospects in particular has deteriorated (-7.0 to 57.5 points and -6.9 to 52.0 points, respectively). The production assessment, on the other hand, has improved by 1 point to 58.6 points. 16 out of the 18 covered industrial sectors reported an increase of production in April, while a decline in business activity was reported in only one case.

The comments of some of the surveyed companies listed by the Institute for Supply Man-agement continue to be either positive or very positive. There are numerous comments such as: “Seeing increased orders and new projects.” and “Business is definitely improving.” Not a single comment refers to concerns regarding negative effects of potential economic policy decisions by the US administration, such as a possible Border Adjustment Tax. There are no signs of uncertainties on the part of the companies. In two cases, however, strong public demand was reported.

Due to the positive comments of the companies regarding their business situation, we do not consider the somewhat stronger decline of the ISM index as particularly problematic. This means we do not see it as an indication of a faltering dynamic in the manufacturing sector. In fact, the index seems to approach a level reflecting the actual development better. In the first quarter, the ISM index significantly overstated the actual development with an average level of 57 points. There is reason to suspect that the strong figures of the past few months reflected a certain euphoria regarding potential benefits from the new US administration. By now, however, the companies have surely been somewhat disillusioned after it has become clear that the ambitious plans of president Trump are much more difficult to put into practice than he tried to make believe.

Monetary policy implications: The US central bank continues its attempt to prepare the market for further interest rate increases this year by means of “hawkish” comments by various FOMC members. The ISM index result reported yesterday is unlikely to deter the monetary authority from this line because the sentiment in the manufacturing sector continues to be good despite the decline. When it comes to the interest rate meeting on Wednesday, we do not expect any concrete hints regarding an interest rate increase in June but we believe that the statement will be phrased in such a way that it keeps all options open for the central bankers.

 

 

 

National Purchasing Manager Index (ISM)
Manufacturing, seasonally adjusted, diffusion indices

 

April

RBI

Consensus

March

February

PMI

54.8

56.5

56.5

57.2

57.7

New Orders

57.5

-

-

64.5

65.1

Production

58.6

-

-

57.6

62.9

Employment

52.0

-

-

58.9

54.2

Supplier Deliveries

55.1

-

-

55.9

54.8

Inventories

51.0

-

-

49.0

51.5

Source: Bloomberg, RBI/Raiffeisen RESEARCH


 
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Creation time of this publication: 02/05/2017 10:11 AM (CEST)
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Creation time of the publication in German: 02/05/2017 09:06 AM (CEST)
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