The U.S. ISM drop into contraction territory
The U.S. ISM drop into contraction territory in August left a 3-year low of 49.1, from 51.2 in July, 51.7 in June and 52.1 in May. The ISM remains above the 48.0 expansion-low in January of 2016. Today's reading bucked the August bounce in most producer sentiment measures after declines in June and July, but tracked the August pull-back in most consumer confidence measures after a climb to lofty July levels. The various surveys are likely capturing divergent perspectives on the trade war and other dynamic global events, with the associated stock market gyrations. Despite today's headline drop, the ISM-adjusted average of the major producer sentiment surveys is rising back to 53 in August from 52 in July but the same 53 in June, versus 54 over the prior six months, 57 in October and November, and 59 cycle-highs in four of the five months through September. The average is well below the 57-59 range evident since September of 2017. The August sentiment levels, on average, are consistent with an expected factory sector bounce into Q4, after a flat pattern since the four-month pull-back through April. Elevated inventory levels and heightened trade war fear fed the factory sector pull-back, while a rebound into year-end should be led by gains for mining and aircraft deliveries.