The ISM manufacturing index edged now from 48.3 in October to 48.1 in November. Considering the monthly volatility, I would characterize the measure as little changed in recent months:
Not enough to conclude neither that manufacturing is firming nor set to deteriorate further. In contrast, the Markit PMI reached a seven-month high in November. So if you are a Markit PMI-truther, you see more evidence that manufacturing has bottomed out. ISM-truthers remain glum. The battle between the two groups rages, not to be resolved until the data break one way or the other. Taking the two together suggests to me that manufacturing is not deteriorating further at this point with possibility that a the sector has reached a cyclical low.
To be sure, President Trump’s predilection for escalating trade disputes remains a risk for the sector. Today he announced a resumption of steel and aluminum tariffs against Brazil and Argentina in response to the depreciation of those currencies against the dollar. Those nations though have gained more from the export of soybeans to China (substituting for US sales) than they loose from the additional metals tariffs.
In addition, the administration has proposed new tariffs on French goods in response to that nation’s tax on digital revenues. Meanwhile, it looks like the trade talks with China are still in limbo. In other words, Trumpian uncertainty with regard to trade remains a risk for manufacturing.
Relatedly, Trump also put additional pressure on Federal Reserve Chair Jerome Powell, declaring the central bank’s policy stance “ridiculous” and the cause of the strong dollar. Trump will get little relief from Powell – the risk of trade related weakness is no longer enough to prompt easier monetary policy, the Fed is looking for a “material” change to the outlook, and the ISM number isn’t providing that.
Bottom Line: Nothing here to change the Fed’s outlook.